ISLAMIC UNIVERSITY OF KENYA (IUK)

SCHOOL OF BUSINESS AND ECONOMICS

COURSE OUTLINE
BBM 226: BUSINESS ETHICS AND INTEGRITY
Course Lecturer: Muganda David
Phone Number: 0726706493
Contact hours: 42

Purpose: To introduce students to the concept of social responsibility and ethics in strategic
business settings
Expected Learning Outcomes of the Course:
By the end of the course, students will be able to;
a) Explain various effects on society of business and vise-versa
b) Describe the nature of values and ethics that business can develop and apply in society
c) Assess the conduct and behavior of business towards society
d) Consider responsiveness of business

Course Content

Week Topic

1 The Concept of Business Ethics

 Introduction Concept of Business Ethics

 Relationship between business and ethics
 Various Sources of Ethics
 Factors that affect Ethical Behaviors
 Ethics Vs Law
 Reasons why it is Ethical to follow the Law
2 Theories of Ethics

 Various Ethical Theories

 Teleological Theories
 Deontology
 Kantian Theory of Ethics/Morality
3  Differences between Teleological and Deontological Theories of Morality
 Utilitarian Theory of Ethics with focus on Act and Rule Utilitarianism
 Different types of teleological theories

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  Kantian Theory of Ethics with focus on Universalizing Maxim and Persons
as ends
4 Rights and Duties

 Differentiate Rights from Duties

 Various types of Rights
 Sources of rights
 Kant’s Duty-based Approach
 The concept of Prima Facie Duty

5 C.A.T ONE and Assignment ONE

6 Justice and Fairness

 The concept of Fairness and Justice

 Types of Justice in Business/Organization
 Justice theory
 Analysis of a Business case from the point of View of Justice/Fairness
7 Ethics and Marketing

 Relevance of Ethics in Marketing Communication

 Ethical Marketing Vs Unethical Marketing using relevant Ethical Theories
 Ethical Marketing Framework/Agenda
8 Human Resource and Ethics

 Analysis of HR decisions from the point of view of: -

 Justice/Fairness,
 Rights and Duties,
 Utilitarian Perspective

9 C.A.T TWO and Assignment TWO

10 Contemporary Issues in Business Ethics and Integrity

 The Concept of Whistle Blowing

 Components of whistle blowing
 Internal Whistle Blowing in Organizations
11  Concept of Conflict of Interest
 Categories of Conflicts of Interests
 Ethical Implications of Conflict of Interest
 Methods of Reducing Conflicts of Interests
12  Concept of Corruption
 Causes of Corruption
 Categories and Types of Corruption
 Solutions to Corruption
13 Corporate Social Responsibility (CSR)

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  The concept of CSR
 Relevance of CSR to Contemporary Business Organization
 Theories of CSR to Business Ethics
 Dimensions of CSR
 Accountability and CSR
14 Emerging Trends in Business Ethics and Integrity

Teaching / Learning Methodologies: Lectures and tutorials; group discussion; Individual

assignment; Case studies

Course assessment:

Examination 70%,
Continuous assessment test (CATs)- 20%;
Assignment – 10%.
Total 100%
Recommended Text Books:
i) Gilbert, J. (2012). Ethics for managers. Philosophical Foundations and Business
Realities. New York, NY.
ii) Rowan, J., Zinaich, Jr. S. (2003). Ethics for the Professions. Wadsworth, Cengage
Learning.
iii) Boone, L. E. & Kurtz, D. L. (2005) Contemporary Business, UK: Thomson,
SouthWestern Publisher.

Text Books for further Reading:

i) Barry, V. (1979) Moral Issues in Business, Wadsworth Publishing Company,
Belmont, California.

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 CHAPTER ONE

THE CONCEPT OF BUSINESS ETHICS

Introduction

Every act by businesses, managers, individual employees or a person can be viewed and
analysed from ethical perspective. Apparently, what you may justify as right may be on the
floor when weighed on the ethical scale. Businesses exist to create value for people, enhance
the lives of society (i.e. people and even animals) as well as maintain their existence in
business. To the extent that businesses satisfy this very essence, we can conclusively say that
the business is conducted, performed and implemented in an ethical manner. The big question
is, what has ethics got to do with business? In fact, everyone shares the joke about ‘business
ethics.’ ‘It must be an oxymoron’ or ‘it must be a short course’. Or ‘I didn’t know business had
any ethics’. Despite this popular misconception, business ethics is a robust academic discipline
that has yielded much fertile territory in recent years.

Ethics has become important in business today because increasing reports of scandals and
financial malfeasance has become part of organizational life. Every organizational decision,
made by either a board or a manager has ethical implications. Thus, organizations have
embraced the concept of ethics and have actually encouraged ethical decision making.

What is Business Ethics?

Business ethics is a combination of two important words: Business and Ethics. A proper
understanding of business ethics requires decoupling the two words for better understanding
and appreciation of the concept. Business is any organized activity by an individual or
organization to produce and sell, for a profit goods and services that satisfy the needs of society.
Ethics on the other hand is about one’s ability to differentiate right from wrong. Put together,
business ethics is a form of applied ethics or professional ethics that examines ethical principles
and moral or ethical problems that arise in a business environment. It has an overarching effect
on business, individual and the entire organization.

Put together, business ethics refers to the study of people’s tendencies to behave in morally
appropriate ways in organizations. It is sometimes called corporate ethics. Business ethics can
also be defined as the written and unwritten codes of principles and values determined by an
organization’s culture that govern decisions and actions within that organization. It has an
overarching effect as it applies to all aspects of business conduct on behalf of both individuals
and the entire company.

The concept of Ethics

It is abundantly clear that people always know the right thing to do. The difficulty however, is
doing the right thing. This notion is central to the distinction between two key terms – moral

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values and ethics-that are essential to understanding the nature of ethical behaviour in
organizations. When social scientists speak of moral values (usually more simply referred to
as morals), they are referring to people’s fundamental beliefs regarding what is right or wrong,
good or bad. One of the most important sources of moral values is the religious background,
beliefs, and training we receive. Although people’s moral values may differ, several are widely
accepted. For example, most people believe that being charitable to someone in need is right
whereas killing an innocent person is wrong. Based on these beliefs, people are guided in ways
that influence the decisions they make and the actions in which they engage. These standards
are referred to as ethics.

Ethics refers to standards of conduct that guide people’s decisions and behaviour (e.g., not
stealing from others). Most organizational scientists acknowledge that it is not a company’s
place to teach employees moral values. After all, these come with people as they enter the
workplace. However, it is a company’s responsibility to set clear standards of behaviour and
to train employees in recognizing and following them. Just as organizations prescribe other
kinds of behaviour that are expected in the workplace (e.g., when to arrive and leave), so too
should they prescribe appropriate ethical behaviour (e.g., how to complete expense reports and
what precisely is considered a bribe). Not surprisingly, most top business leaders recognize
that clearly prescribing ethical behaviour is a fundamental part of good management. Thus,
ethics is about conduct.

It seems obvious that we should care about ethics because behaving ethically is the right thing
to do. Indeed, many famous people agree that ethical behaviour is of paramount importance.
For example, President George W. Bush said, “At this moment, America’s highest economic
need is higher ethical standards-standards enforced by strict laws and upheld by responsible
business leaders. Similarly, Robert D. Hass, former chairman of Levi Strauss & Co., posited
that “A company’s values what it stands for, what its people believe in-are crucial to its
competitive success.” Despite these lofty and well-meaning statements from leaders, we
already noted that people do not always do the right thing. Under the right circumstances, even
seemingly ethical people behave unethically. Pressure to meet sales quotas, for example, have
led some stockbrokers to boost their commissions by convincing unknowing clients to make
bad investments. Clearly, this is wrong on moral grounds. Although managers may be
uncomfortable changing their morals, they must be concerned about promoting ethical
behavior for two sound business reasons. First, over the long run, being ethical is profitable.
Second, being ethical satisfies many of today’s legal regulations. Figure 1 illustrates the link
between morality, ethics, decision and behaviour.

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 Moral values Ethics Decision Behaviour

(Fundamental beliefs (Standards of conduct (Plan for behaving (Action taken

about what is good or in keeping with one’s in an ethical following from the
bad, right or wrong) moral values)
fashion) decision made)
Example: It is wrong to Example: I should not
harm another person. steal Example: I decide Example: I do not steal
not to steal

 Religious  Clearly  Organizational group norm

background, articulated
beliefs, ethical standards  Culture and the organization
training
 Training in  Observations of leadership
 Level of recognizing and
cognitive applying ethical  Work attitudes and motives
moral standard
development
 External stressors

Although individuals and businesses are expected to act ethically, business ethics scholars
differ in their descriptions of the context of an ethical choice, on the principle to use in making
the choice, and on the particular alternative dictated by that principle. Business ethics is a
process of normative thinking about business. Its task is not to hand down ethical verdicts. The
field of business ethics does not 'accuse' anyone else.

Sources of Ethics

All human beings have a basic sense of right and wrong, which develops quite early in life and
is often modified with maturity and experience. However, there are some categories of people
who appear to be without concern for the impact of their actions on other humans. These
people, Psychologists label as sociopaths.

Are humans born ethical? Or we learn to be ethical? This issue has preoccupied the minds of
scholars for centuries. The argument is, are babies born with some knowledge or inclinations,
or a newborn baby is a blank slate, with knowledge and inclination provided by experience.
This complex issue is sometimes referred to as the “nature vs. nurture”, debate, and has been a
subject of a great deal of study and experimentation. However, present evidence point to the
fact that, in some ways, newborns are not all alike. In layman’s terms, infants are born with
personalities or pre-dispositions. All share certain physical instincts, but such traits as
excitability or placidity seem to be present in varying degrees from birth. It is imperative
however, to appreciate the fact that, a baby’s upbringing from its earliest days also has
significant influence on how it reacts to the world around it. There is enough evidence to
conclude, at least tentatively, that children brought up in secure and nurturing environments
show a strong tendency to view the world differently than children raised in less secure and
more hostile environments.

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While evolutionary researchers have established that patterns of decision-making and concepts
of right and wrong emerge from early life experience, it important to note that influence is not
the same as determination. This is because unless individuals at least in some instances make
truly free choices, the concept of ethics makes no sense. It is a principle of both philosophy and
law that no one is obliged to do what they cannot do.

It can be said that the sources of an individual’s sense of moral right and wrong lie to some
extent in their personality, and this is impacted by early experience. There are a variety of ways
by which individuals learn or inculcate ethical values.

Parents

Parents are certainly a major influence on the sense of ethics of that adults bring to their work.
Consider the statement, “She has a good work ethic.” It is a common way of saying that
someone has certain beliefs and attitudes that influence their performance at work. If this can
be said about someone in her first job, then the good work ethics must have been formed before
they became an employee. For most people, this means that it was formed at home as they were
growing up, and this shows the influence of parents in development and internalization a good
work ethic. Even adults who no longer agree intellectually with their parents’ teaching about
right and wrong behaviour sometimes admit that their parents’ teaching influence their
thoughts and actions. Therefore, parents are one source of ethics that an individual does bring
to their work.

Peers

Our siblings, schoolmates, college mates, fellow workers or members of a club, team or social
group to which an individual belongs influence our sense of ethics. Often individuals define
themselves by their group of friends, and adults also have their views shaped to some degree
by their peers. It is said that police officers often have a more negative view of humanity than
those in some other professions because they spend so much of their time dealing with
criminals.

Peers can also be members of the same profession. Accountants, attorneys, medical doctors
and members of other professions undergo extensive schooling. They learn not only how to
minimize taxes or diagnose diabetes, but also how member of their profession act and think.
Professional education involves socialization as well as information transmission. Obviously,
not all accountants or attorneys think alike. However, an argument can be made that members
of a given profession think more alike than non-members of that profession. Another factor
involving peer influence in the profession is the existence of professional code of conduct.
These codes of conducts are not perfect, and they do not influence all members of a profession
equally. However, they do provide a starting point for making some kinds of ethical judgments,
and they are more or less widely known within a profession.

Teachers

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They are another important medium of an individual’s sense of morality. Whether it is the
simple but often-repeated rules of grammar school or the more involved exposition that occurs
in college classes, teachers as authority figures do communicate in ways that influence the
reasoning and judgment of at least some of their students. For example, almost all teachers
communicate, subtly or overtly, that cheating is wrong. They say this, they write it in a syllabi
and on exam instructions, and they act on this when they detect cheating. Teachers also often
communicate the value of doing assignments, or thinking clearly, or doing one’s part in a group
projects. The cumulative impact of teachers does have an influence on the formation of an
individual’s sense of ethics.

Culture

Our cultural values are critical as far as moral lessons are concerned. Culture can be defined as
the unspoken rules and assumptions about how we do things around here. When considered in
this way, culture is subtle because it is unspoken. Most organizations do not have explicit rules
that dictate who shall be called by their first name and who shall be addressed more formally.
They do not have explicit rules about profanity at work, or the degree to which client
information is kept confidential, or the kind of jokes that are acceptable or unacceptable in the
workplace. Although none of these things is formalized, there often are unspoken rules. An
observer of the behaviour of workers at a construction site and at a law firm would notice
immediate and profound difference in individual behaviour and methods of conducting
business. The two have different cultures. However, an individual’s sense of ethics is shaped
by the culture or cultures in which he operates.

Religion

By far religion is regarded as the most important driver of an individual’s sense of ethics.
People who were raised in a religion, even if they no longer believe or practice it, often have
the teachings of that religion as part of their sense of ethics. People who do believe in and
practice religion typically find the moral rules or dictates of their religion the most meaningful
way to answer questions about right and wrong behaviour. However, most religious people
would agree that it is not a good thing to commandeer passenger airplanes and fly them and
their passengers into building in order to avenge one’s god or to send a religious message. Most
religious people would agree that doing such things in the name of religion is to misunderstand
or misinterpret religion.

Ethics and Law

It is not enough to simply say that our conduct is lawful. The law is the floor. Compliance with
it will be the absolute minimum with respect to the individual and business, no matter where
he or she works or sector the business operates. Thus, ethics go beyond the legal code. This
statement underscores two important points—namely, (1) that following ethical standards is
not merely the same as obeying the law, and (2) that the law may be considered the minimum
acceptable standard to which companies must adhere. Over the years, as people have become
appalled by breaches of ethics in the government and corporate worlds, it is not surprising that
they have looked to their political leaders for long-term solutions.
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It is important however, to indicate that law influences people’s sense of morality. In fact,
business people often equate ethics and law; however, the two differ to some extent. For
example, businesses involved in scandals have had their executives said, in effect, “What we
did was not wrong because we complied with the law, or with Generally Accepted Accounting
Principles.” In other words, many people, at least some of the time, do not make a distinction
between what is legal and what is moral.

While ethics is a branch of philosophy, law is seen as a quite distinct field. Legal systems, or
groups of laws, have existed for thousands of years. Law is a function of government, in that
laws are made, changed and enforced by governments. Law apply in specific places and have
their standing from the government of countries, states or other political entities or group of
entities. Typically in a democracy, the constitution or other foundational document provides
rules for how laws are to be made and changed. Directly related to laws are regulations.
Regulations have the force of law, but are generally more specific and are written and approved
by regulatory agencies within the framework of the elected government. Regulators are
generally appointed rather than elected. Regulations are intended to provide detail specifying
how broader laws apply to specific cases and examples. Most businesses are subject to several
regulatory agencies and must comply with detailed regulations in such matters as taxation,
financial disclosure and product safety. All businesses are also subject to a variety of laws and
regulations in matters relating to employment.

Why ethics is not the same as law

First, law-makers are often not noted for their refined moral sensibility. For example, students,
scholars and professionals would not subscribe to the notion that either national or local
legislators make up their moral code. This should not be surprising, for in a democracy,
candidates for office generally do not claim to be the most virtuous or the most morally
sensitive individuals in the country. This is not however, to say that most politicians and
regulators are liars and thieves. It is merely to say that they are not chosen and kept in office
because of their moral sensitivity.

Finally, it is dangerous to equate law to ethics because laws change, while many people expect
at least the basics of morality/ethics to be unchanging. For example, in some parts of the world
prostitution is legal and even same sex marriage. While the legal status of an act can change
from country to country, it is difficult to argue that prostitution or same sex marriage is moral
or ethical in one country and immoral or unethical in the next.

It is Ethical to Follow the Law

Although it is dangerous to equate law to ethics, it is ethical to follow the law. This is because
all of the major systems of ethics include an assumption in favour of obeying the law. Note that
this is the assumption, not an absolute mandate. This reasoning is premise on the following: (a)
Laws are made to reflect and protect the values of a society, at least in a democracy. If they do
not reflect society’s values, new law-makers are elected by the people. (b) Ethics is about

9
values. If a society’s values the individual’s rights to speak his or her mind, its laws will tend
to protect free speech, and most censorship will be considered illegal.

Ethics and Managers

The social responsibility of business is to increase its profit or effectiveness. Friedman, the
famous Nobel Prize-winning economist noted that the role of the manager is to act as the agent
of the owners of the business that he or she managers, namely, the stockholder. Specifically,
Friedman indicates, the manager as an agent of the owner:

...has direct responsibility to his employers. That responsibility is to conduct the

business in accordance with their desires, which generally will be to make much money
as possible while conforming to the basic rules of society, both those embodied in law
and those embodied in ethical customs (Friedman, 1970).

Earlier ethics was defined as the discipline that studies interpersonal or social values and the
rules of conduct that derives from these values, certainly the decisions of managers do affect
other people, including their subordinates, others within their organizations and various people
beyond the organization, including but not limited to the stockholders or owners. Managerial
ethics, then, must of necessity examine the impacts of the actions of managers. This
examination cannot be limited to the compliance or non-compliance of those actions with laws
and regulations. Several studies on leadership exist, but almost none of it refers to complying
with the law as a characteristic of a successful leader. It is assumed that good leaders do not
run afoul the law, but it is not at all assumed that compliance with the law is the same as good
leadership. Not all managers are leaders, but both managers and leaders have interaction with
others as a significant part of their job.

Psychologists and social theorists tell us that individuals have trouble dealing with
inconsistency. It is hard for the same person to be warm and nurturing with spouse and children,
and cold and impersonal with subordinates at work. The ethical or virtuous person, according
to Aristotle, is the person who shows consistency and moderation in all their dealings with
others, be they family or friends, or peers, or subordinates.

Factors that Affect Ethical Behavior

1. Stage of moral development (Kohlberg) – Stage one – pre-conventional, rule
following. Stage two – Conventional, living up to expectations of others. Stage three –
Principled, following self-chosen path and respecting others.

2. Individual characteristics – values, knowing right from wrong. Ego strength, the
power of your convictions. Locus of control, an internal locus of control means that you
believe you control your own destiny, an external locus of control means you believe
you have no control.

3. Structural factors – an organisation’s structure affects people’s ethical behaviour (e.g.

clear ethical statements, policies and regulations).

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4. Organisational culture – this is made up of the values and norms shared by people
working for an organisation. A strong culture will exert more influence than a weak
one.

5. Issue intensity – this refers to how important an issue is. Something not so important
(e.g. making private local calls) has different ethical implications to something very
large (e.g. embezzling GH¢1 billion). The act is the same (theft) but the intensity of the
issue is different.

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 CHAPTER TWO

THEORIES OF ETHICS

Ethical issues are better explained from a theoretical perspective than from a layman point of
view. This chapter addresses the various ethical theories and how they facilitate our
understanding of business ethics and the implications of manager’s decisions.

Introduction

Throughout the history of philosophy, thinkers have addressed the question of what makes an
act moral or immoral. In this book, the terms “moral” and “ethical” will be used
interchangeably. Ethical decisions are usually viewed from a theoretical perspective. Thus, a
manager’s decision to terminate an individual’s employment may be justified using the
utilitarian theory. This chapter addresses theoretical issues as they relate to ethics in business.

Is there a single view of right or wrong? These questions can be complex, since there is no
single view in general ethics of what makes something right or wrong. People or
businessmen/women give explanations or reasons to explain their decisions and behaviours
and this is expressed in ethical criteria normally grounded in ethical theories (Victor & Cullen,
1988). The theory-based criteria contain information about the recommended action and about
the reasons for that recommendation. These criteria comprise the logic for action, "the
underlying assumptions, deeply held, often unexamined, which form a framework within
which reasoning takes place" (Horn, 1983). Broadly speaking, ethicists put ethical theories
under two main categories: Teleological and Deontological ethics.

Teleology
Teleology is a philosophy of science that promotes a focus on outcomes and consequences
when studying various phenomena (Kagan, 1997). As such, theories based on this approach to
the study of ethics are sometimes referred to as consequential theories. The notion behind
such theories is that the morality of behaviour can be judged by the consequences of that
behaviour. Specifically, a consequentialist view of ethics holds that the goodness or badness
of a proposed action is evident only in the consequences of that action: whether a lie is good
or bad depends upon the consequences of that particular lie at the time. Utilitarianism, for
example, is a consequentialist theory, in that it seeks to maximize the net happiness for
everyone affected by a particular action (‘the greatest good for the greatest number’, as it is
sometimes expressed).

Teleological Theories
Consequential Theories

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Many theorists contend that the moral rightness of an action can be determined simply by
looking at its consequences. If the consequences are good, the act is right; if the consequences
are bad the act is wrong. Consequential theories measure the morality of actions on the basis
of their non-moral consequences (Barry, 1979). Simply put, actions should be judged in terms
of their consequences. Consequential theorists therefore determine good or bad action simply
by looking at the ratio of goodness or badness the action produces; and eventually choose the
course of action that would seem to produce the most good. Under consequential ethics,
egoism, utilitarianism and situational ethics will be discussed.

Egoism
Egoism is a branch of teleology, which focuses on the consequences of behaviors on the self
as opposed to others (Tsalikis & Fritzsche, 1989). Egoism is a moral act which promotes the
individuals best long-term interests. In determining the morality of an action, egoists use their
best long-term advantage to measure the action’s goodness (Barry, 1979). Egoism measures
the morality of a behavior by the extent to which the behavior promotes one’s own interests.
Under this approach, an action that promotes a person’s knowledge and self-actualization is
considered ethical, whereas an action that does not is considered unethical. There are a few
variations of the theory; one school of thought views two forms of egoism and these are
psychological egoism and ethical egoism. Psychological egoism is a descriptive theory of
human behavior that holds that people are naturally programmed to behave only in their own
self-interest. Ethical egoism is the normative theory whereby people ought to act exclusively
in their self-interest (Reidenbach & Robin, 1990; Jones et al., 2007). Thus, the moral principle
of ethical egoism suggests that an act is ethical when it promotes the individual's long-term
interest (Shultz & Brender-Ilan, 2004; Jones et al., 2007). Note that it is possible for people to
help others, follow the rules of society, and even grant gifts if they believe that those actions
are in their own best interest.

Some moralists also distinguish between two kinds of egoism: personal and impersonal.
Personal egoists claim that they should pursue their own best long term interests and
impersonal egoists also claim that everyone should follow their own best long term interests
(Barry, 1979). Hinman (2007) on the other hand sees three categories of ethical egoism;
personal ethical egoism which believes that “I am going to act only in my own interest, and
everyone else can do whatever they want.” Individual ethical egoism also believes that
“everyone should act in my own interest.” and universal ethical egoism contends that “Each
individual should act in his or her own self-interest.” Ethical egoists sometimes maintain that
if each person took care of himself/herself, the overall effect would be to make the world a
better place for everyone.

Utilitarianism
The theory most commonly associated with the teleological approach is known as utilitarian
theory. Utilitarianism is the philosophical approach which says that the moral act is the one
that creates the greatest happiness or good for the greatest number of people. To Rachels
(1993), the belief that actions should be appraised in terms of their effect on happiness is

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utilitarianism. In Barry’s (1979) opinion utilitarianism is the consequential doctrine that asserts
we should always act so as to produce the greater ratio of good to evil for everyone and
therefore emphasizes the best interests of everyone concerned. Lewis (1991) defines it as
society’s net benefit over harm. To Hinman (2007) the fundamental imperative of utilitarianism
is to always act in the way that will produce the greatest overall amount of good in the world.
Conversely, behaviour is deemed to be unethical if it either does not maximize the benefit
individuals receive, or produce more benefit for some people than for others. In terms of
organizational policies, utilitarianism holds that rules are ethical if they promote behaviours
that maximize the benefit for all members and other stakeholders, and are unethical if they do
not (Sherwin, 1983; Tsalikis & Fritzsche, 1989).

Utilitarianism has been linked to the modern welfare state which has found some special
interest for students of philosophy and society. It has also been associated with reform or social
improvement (McPherson, 1970). Hosmer (2003) contends that in applying the utilitarian
theory to the outcome of an action or decision, the principle is that everyone should act to
generate the greatest benefits for the largest number of people. The ultimate goal of
utilitarianism is not the happiness of the individual, but the happiness of society (Rossouw,
2002). Are the greatest happiness and the greatest good the same thing? Broadly speaking,
utilitarians answer yes.

Utilitarianism focuses on ends and not on the means required to achieving those ends, and it
takes into account all present and future benefits and harms that accrue or might accrue to
anyone who is affected by the action, including items that may be difficult to evaluate
accurately (Schumann, 2001). According to the utilitarian moral principle, an act is morally
acceptable if it produces the greatest net benefit to society as a whole, where the net social
benefit equals social benefits minus social costs (Bentham, 1789; Mill, 1957; Brandt, 1979;
Rachels, 1999; Velasquez, 1998; Schumann, 2001; Cavanagh, 1981).
The primary way of assessing “the greatest good for the greatest number” is by performing a
social cost/benefit analysis. All possible benefits and costs of the assessed act are listed and
summarized as the net of all benefits minus all costs. If the net result is positive, the act is
morally acceptable; if the net result is negative, the act is not acceptable. Utilitarianism seems
to have been accepted by business people, which may in part be due to its tradition in
economics. The ensuing economic philosophy of capitalism, alongside Adam Smith (1776),
provides a rich traditional heritage to the utilitarian concepts. Capitalist systems, by providing
the greatest material good for the greatest number, get to be considered ethical from the
perspective of the traditional economic philosophy. It should be noted here that the utilitarian
analyses of moral philosophers extend beyond material good to the much broader concept of
utility, from which the term utilitarianism is derived.
The theory of utilitarianism is associated with two English philosophers: Jeremy Bentham
(1748-1832) and John Stuart Mill (1806-1873). In expressing the theory of utilitarianism,
Bentham said:

Nature has placed mankind under the governance of two sovereign masters, pain and
pleasure. It is for them alone to point out what we ought to do, as well as to determine
14
 what we shall do. On the one hand the standard of right and wrong, on the other the
chain of causes and effects, are fastened to their throne.

He proceeded to define the principle of utility as follows:

By the principle of utility is meant that principle which approves or disapproves of

every action whatsoever, according to the tendency which it appears to have to augment
or diminish the happiness of the party whose interest is in question: or, what is the same
thing in other words, to promote or to oppose that happiness.

In his contribution to the theory of utilitarianism, John Stuart Mill’s posited:

The creed which accepts as the foundation of morals, Utility, or the Greatest Happiness
Principle, holds that actions are right in proportion as they tend to promote happiness, wrong
as they tend to produce the reverse of happiness. By happiness is intended pleasure, and the
absence of pain; by unhappiness, pain, and the privation of pleasure. To give a clear view of
the moral standard set up by the theory, much more requires to be said; in particular, what
things it includes in the ideas of pain and pleasure; and to what extent this is left an open
question. But these supplementary explanations do not affect the theory of life on which this
theory of morality is grounded – namely, that pleasure, and freedom from pain, are the only
things desirable as ends; and that all desirable things (which are as numerous in the utilitarian
as in any other scheme) are desirable either for the pleasure inherent in themselves, or as means
to the promotion of pleasure and the prevention of pain.

Utilitarianism as a Result Oriented Ethical Theory

Although it could be interesting to actually sit back and think about what our ultimate ends
might be, in most cases we make decisions based on more immediate concerns – what
philosophers would call instrumental or intermediate concerns. For example, a manager
may add six new salespeople because he/she is persuaded that the additional revenue they
generate will not only cover their own costs, but also provide an increment of profits to the
company. Also, we choose to go to the dentist and have a root canal performed not because we
enjoy pain as an ultimate end, but because the temporary pain of the dental procedure will result
in a longer pain-free period afterward.

When we decide on the morality of an action based on the results that will be achieved, we are
engaging in utilitarianism. This is different from choosing an action because it is simply the
right thing to do. Thus, the charge is sometimes raised that utilitarianism is wrong because it is
based on the notion that the end justifies the means.

For too many people, the statement “the end justifies the means” is the same as “a good end
justifies any means.” Increased profit for my business is a good end, but it does not justify my
employing eight-year-old children for twelve hours a day and paying them a dollar an hour. It
also does not justify ignoring safety concerns and selling a product or service with a high
likelihood of harming or killing my customers. However, if my employees are seriously
overpaid and my company is about to go bankrupt due to uncompetitive pricing caused by
15
labour costs, reducing either wages or staff, or both, may well be justified in order to keep the
company operating and prevent all employees from losing their jobs.

In terms of organizational research, both egoism and utilitarianism (branches of teleological

ethics) are problematic in that they focus on ends as opposed to means (Tsalikis & Fritzsche,
1989). That is, a behavior might achieve an outcome that is beneficial for all stakeholders of
an organization, but accomplish the outcome in a way that is detrimental to long-term well-
being, for example. It can also be argued that a utilitarian outcome is not always a fair outcome
in that some people may contribute above-average inputs to a task, but receive equal shares of
the resulting benefits.

Types of Utilitarianism
Act utilitarianism
Is the theory stipulating that the morally right act is the one that produces at least as much
overall happiness in the circumstances as any alternative act. This means that when deciding
which act would be ethically right, a person must investigate the reasonably foreseeable
consequences of the different possible acts she could perform; the act that would produce the
most overall happiness is morally right and must be carried out.
Example: this scenario involves two parties and two alternative courses of action. Consider a
request made by your aunt in the local retirement home that you visit her one evening. She can
be a difficult person and you do not particularly like visiting, though you know she is lonely
and your visits do her a world of good. If you agree to her request and visit her, she will be
very happy, but you will miss your favourite television show, causing you to experience a
certain amount of unhappiness. If you decide not to visit her, she will be extremely
disappointed, but you will be able to watch your television programme, gaining some happiness
(though a twinge of guilt takes away just a bit of that happiness). Act-utilitarianism requires
this sort of thinking – analysing the effects on the happiness of the individuals involved for
each alternative course of action. The morally right action is the one producing the most overall
happiness. The following chart captures these various effects:

Visit Do Not Visit

You -10 +8
Aunt +15 -20
Total +5 -12

Notice that the amount of happiness gained or lost is quantified. However, in line with the
formal definition of act-utilitarianism provided here, it should also be pointed out that in the
case where there is a “tie” in that two alternative courses of action would produce the most
happiness, either of the two acts may be performed. This sort of possibility is covered by the
specification that the right act would produce “at least” as much overall happiness as any
alternative act. If, for example, the total effects on happiness would be identical for ACT X and
Act Y (if, say, each would produce a net gain of 5 units of happiness), then either of those two
actions would be morally permissible. To say that an act is morally permissible, is to say that
16
it is allowed but not required; the performance of the act is not morally wrong, but neither is
the failure to perform it. However, performing one of those two acts, instead of Act Z (that
would, say, produce an overall gain of only 2 units of happiness), would be morally required.
Act-utilitarianism has been endorsed by philosophers because (a) it assesses the morality of
actions in terms of the consequences of those actions, and utilitarian suggest that this is
common sensical, that what we mean by the morality of actions is just the consequences that
those actions might bring about. Thus, in what other ways, they ask, could morality be assessed
except by appealing to the consequences? (b) It is relatively simple and (all things considered)
easy to apply; the principle “maximize overall happiness” is straightforward. This is important,
according to utilitarians, because in areas of applied ethics (such as professional ethics), it is
desirable to have a basic moral theory that can be applied to real-life cases without undue
difficulty. (c) act-utilitarianism possesses the characteristics that are important for a viable
moral theory.
Rule-Utilitarianism
Act-utilitarianism calls for the maximization of overall happiness in the circumstances. Rule-
utilitarianism differs in that it calls for an analysis that extends beyond the immediate
circumstances. Instead, it calls for a closer look at the long-term consequences that would be
generated by performing the act in all relevantly similar situations. More formally, according
to rule-utilitarianism, the right act conforms to the rule which, when followed, produces at least
much overall happiness over the long run as any alternative rule. More broadly, that rule must
then itself be a member of a set of rules that would produce at least as much overall happiness
as any alternative set.
The claim made by rule-utilitarianism is that their theory will generate rules, and will thus
prescribe actions in accordance with those rules, that are much more in line with our intuitions.
For example, the rule requiring people to keep their promises is likely justified by rule-
utilitarian considerations. A society in which people can rely on others to keep their word will
be happier than a society in which promises are broken on a regular basis. Keeping one’s word
will thus be a fairly stringent moral obligation under rule-utilitarianism; it is a rule that would
produce at least as much happiness as any alternative rule pertaining to promise-keeping, and
that rule can likely be integrated into a set of rules that would maximize overall societal
happiness. Thus, when a lawyer agrees in principle to a settlement in a lawsuit and then goes
back on that agreement just before the schedule trial date (in order to cause confusion on the
part of the opposing lawyer), rule-utilitarianism could perhaps be used to show that such an act
is unethical.
Conclusion
Criticizing utilitarianism is not enough to demonstrate that it should not be used in ethical
decision making. In addition to the criticisms, a defense of a “better” theory must be provided.
It is much easier to criticize than to defend. (Political campaign advertisements are examples
of this; the faults of the other candidate are often highlighted rather than the merits of the
candidate himself.) Utilitarian sometimes acknowledge that their theory is not perfect, but they
challenge their critics to point to a better one. After all, they say, there is not perfect moral
theory; rather, it is the best moral theory that is sought. The following theories are attempts to
provide alternative to utilitarianism as a foundation for ethical decision making.
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Cost-benefit analysis as a form of Utilitarianism
Cost-benefit analysis is a utilitarian approach to evaluating proposed expenditures in business
or in government. The basic concept behind cost-benefit analysis is that spending money, time
and effort might be justified by the results to be achieved, but it might not. Since this sort of
analysis is future-oriented, it will necessarily be less precise than analysis of expenditures that
have already been made and results that have already been achieved.
Cost-benefit analysis conceptually underlies the whole process of budgeting. It does not make
good business sense to plan to spend money, under either expense or capital budgets, that will
not yield a benefit at least equal to the expenditure. The budget process is often conducted with
a good deal of politics involved and, as the saying goes; the devil is in the details. However,
when money could be spent in one of several ways, but not all of them, then aiming to get the
biggest bang for the buck is not really different than aiming to create the greatest good for the
greatest number, at least in principle.
While cost-benefit analysis is utilitarian in spirit, it is narrower in scope. Whether in business
or in government, the most common benefit weighed against costs is financial in nature. If a
project or an addition to staff will either generate enough revenues or reduce enough future
financial cost, then it is approved. The principal metric used in cost-benefit analysis is
efficiency-will the expenditure in question generate the most output with the least input? While
it might legitimately do so, cost-benefit analysis does not always take into account impacts
beyond expenses and revenues. To give one example frequently raised in business ethics
textbooks, a cost-benefit analysis of a plant closing in a small town might not address the
impact on the town’s unemployment rate or tax base, while in utilitarian analysis would also
factor in these issues.
Cost-benefit analysis, by its nature, stresses quantifiable factors. However, projects or
expenditures are sometimes approved on the basis of necessity rather than amount of dollar
benefits. One relatively small hospital group with which I am familiar recently decided to spend
tens of millions of dollars integrating its more than twenty software systems so that medical
and financial information would be available to everyone involved with a patient from pre-
admission medical work-ups to post-discharge follow-ups. The executives of the hospital group
felt that they simply could not continue to provide adequate service without such systems
integration. The project was approved on the basis of necessity rather than of quantified savings
or additional revenue and profits. It appears that, in deciding to spend this amount of money
on systems integration, they were aiming in a broad sense to achieve the greatest good for the
greatest number.

Deontology
One school of thought emphasises duties, things that must be done (or refrained from)
irrespective of the consequences. This deontological point of view holds that goodness or
badness is evident only in the action itself: that, for example, lying is bad because it is bad in
itself. Thus, deontological approach to the study of ethics differs from teleological approaches
in that it does not focus solely on consequences when assessing the morality of actions. Instead,
this approach places more emphasis on the extent to which a person’s decisions and behaviours
conform to existing standards of morality such as rules and rights. Deontology deals with
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actions, which are inherently right or wrong, without taking their consequences into account.
In order to define the rightness or wrongness of a given alternative of action, we do not have
to know its probable outcomes. The foundation of moral duty is an “a priori” belief. Reason
can reveal the basic moral principles. In order to define what I should do, I must consider what
all rational beings must do. Moral laws are valid for all rational beings.
The deontological school of thought focuses on the preservation of individual rights and on the
intentions associated with a particular behaviour, rather than on its consequences.
Deontologists look for conformity to moral principles to determine whether or not an action is
ethical. They also feel that individuals have certain undeniable rights, which include freedom
of conscience, freedom of consent, freedom of privacy, freedom of speech, and due process.

Both duties (deontological) and consequences (teleological) are plainly important in the way
we deal with ethical issues in everyday life. Unfortunately, however, they are very different
ways of reasoning, which can lead to contradictory outcomes in some cases. An exclusively
duty-based view of ethics, for example, must sooner or later run into problems such as
absolutism, or the difficulty of deciding which duty should take precedence over others in a
particular situation. If, for example, both lying and killing are held to be inherently wrong, is it
acceptable to lie in order to avoid a killing? And whatever answer is given, how do we know?

The approaches of two leading deontologists will be discussed in this course. The first is a strict
deontology described by Immanuel Kant (1724-1804), who is credited with providing the
details of the theory. In fact deontological ethics is sometimes thought to be synonymous with
“Kantian ethics”, though this equivalence is misguided, one can believe that deontology is the
best moral theory without agreeing with the specifics of Kant’s claims. This was true of Sir
W.D. Rose (1877-1971), a more moderate deontologist whose views would be discussed in
this text.

Kantian Theory of Ethics/Morality

The purpose of a moral theory, Kant is to provide a way of discovering whether certain actions
or policies are ethically right, wrong, or permissible. Example, Martell Welch, Jr. attacked
Deletha Word because she accidentally dented his car. He stripped and beat her in broad
daylight on the Bell Isle Bridge in Detroit, Michigan. While he beat her, over forty people
watched him and, according to reports, at times cheered for him. No one on the bridge offered
any kind of assistance to Word, not even a phone call for help. To escape from Welch, she
threw herself over the side of the bridge and drowned. It seems to us, according to our moral
vision that Welch’s actions were ethically wrong, and it also seems that the other people on the
bridge were wrong for failing to act on her behalf. A moral theory, though, is supposed to test
these sorts of intuitions to see if they reflect moral truth; it is supposed to clarify things, so that
we can determine whether our initial moral vision is accurate.

From Kantian perspective, the determination of whether Welch’s action was morally right,
wrong or permissible requires carefully consideration of the act under the following thematic
concepts. According to Kant, the answer to each question is a “proposition” of morality and a
revision of these propositions leads to a better understanding of the theory and how it works.
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The first question, which is very basic, is: what makes a person morally good? Kant posits that
the intention (motive) one chooses makes one morally good. When we judge people as morally
good or bad, we do not look at whether they happen to achieve their goals. People often fail to
accomplish set goals through no fault of their own. You may set yourself the general goal of
helping others, and this may mean that when the man next to you has a heart attack, your
specific goal is to save his life. It may be, however, that despite your best efforts to save him,
the man dies nonetheless. It should be clear that the man’s death does not mean you are morally
bad. Instead, it is more plausible to claim that you are morally good because your goal – your
intention – was to save his life. This is the idea behind Kant’s first proposition; to assess a
person morally, we must look to his intentions.

Next is what sort of intentions makes one morally good? This leads to Kant’s second
proposition of morality. Specifically, Kant indicates that there is a right and a wrong way to
answer this question. The wrong way pertains to happiness. It is a fact of human nature that
people are inclined to act so as to make themselves happy. Perhaps you have the intention of
doing well in school, and this is because you have the yet further intention of being happy. This
is a perfectly reasonable way of describing a person’s structure of intentions. Kant points out,
however, that being happy is not necessarily the same thing as being a morally good person.
After all, some things that make you happy may be unethical. Therefore, it is not the intention
of bringing about happiness that makes one morally good. Instead, it is acting with the intention
of being dutiful – of acting from the motive of duty itself, and not from the (misguided) motive
of bringing about happiness. Stated formally, Kant’s second proposition is that a morally good
intention (the possession of which makes a person morally good) is the same as acting from
motive of duty.

The second proposition (acting from motive of duty) gives rise to a third question: what exactly,
does this mean? What does it mean for a person to intend to act from the motive of duty? Kant’s
answer which is his third proposition is that acting from the motive of duty is acting out of
respect for the moral law. The moral law to Kant is that which morality requires. Specifically,
the moral law is what morality itself (objective moral truth) requires of us, and acting out of
respect for the moral law means not allowing anything-not happiness, not fear, not love, not
even government’s law – to get in the way of doing what is morally right. This commitment to
doing what is right, and being willing to sacrifice happiness along the way, is what Kant means
to capture by the notion of “respect” in this third proposition.

In brief, Kant’s views about morality or ethics is that a person is morally good (performs moral
actions) if he acts from a morally good intention, and an intention is morally good if the motive
is duty itself, meaning respect for the moral law. First, for Kant, doing the right thing can be a
somewhat complex operation. Acting from the right motive is crucial. Some Kantians take this
to mean that acting from the right motive is a necessary part of performing the right act-that
one cannot perform the right action unless she acts out of respect for the moral law. Others
believe that the two notions are separate, that one must perform the morally right action, and
in addition, must do so with the right motive (respect for the moral law). Against this backdrop,
it is possible to perform the right action without doing so out of respect for the moral law.
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Secondly, appeal to consequences to Kant, is irrelevant. Although certain aspects of Kantian
ethics incorporate consequences, the appearance is deceptive. Third, in performing a morally
right action, one’s inclinations have to be ignored. Inclinations refer to intuitions, desires,
emotions, or any motivations other than respect for the moral law. Kant believes that when
determining the ethical course of action, inclinations can get in the way; they can skew one’s
thinking and lead to misguided conclusions about what is ethical. Inclinations should thus be
set aside. Despite this elucidation about a morally right action, we are unable to determine what
this moral law is? To understand this, Kant proposed an answer in his famous moral theory,
the categorical imperative.

Kant’s Categorical Imperative: Universalizing Maxims

In ethics, moral theories serve as tools for sharpening our moral vision, for helping us to better
see things (ethically) as they really are (objectively). The tool of Kantian deontology focuses
on motive, but the more complete account of theory entails categorical imperative, which
serves two purposes. First, it is a command; it instructs us what to do. In fact, it tells us what
we must do if we are to act ethically, and in this way it tells us what the moral law really is.
Second, it is a mechanism for testing actions or rules to see whether they are ethically right,
wrong, or permissible.

First, the theory is premised on the idea of universalizing maxims. In Kant’s words, the
command is, “Act only according to that maxim by which you can at the same time will that it
should become a universal law.” Putting into context, if we asked Martell Welch why he beat
Deletha Word, he might respond by saying, “she made me angry, and beating her made me feel
better.” His motive in some sense pertains to alleviating the anger she caused him. The second
step is to use this motive to ascertain the person’s maxim. A maxim is a more general type of
motive; it is an individual’s reason for acting, but it is expressed as a general rule that applies
to all future actions. Welch’s motive in the specific case can be expanded into the following
general guiding rule: “Whenever anyone angers me, I will beat that person so that I can feel
better.” This is Welch’s maxim; it is the general rule that he was following in this particular
case. The third step would be to universalize this maxim, which means restating it not just for
the individual but for all people (or, as Kant says, for all rational beings). The universalized
maxim would then be: “Whenever anyone angers any person, that person who is angry will
beat the person who caused the anger.” The fourth step is to assess whether this universalized
maxim can be a moral law. If this universalized maxim is consistent – if it can be practiced in
the world without any inconsistency – then it can be a moral law. This would mean that the
original action performed is not wrong. If, on the other hand, the universalized maxim generates
a contradiction and is thus inconsistent, then the original act performed is wrong and may not
be performed. In the example, a natural result of the universalized maxim is that there would
be a lot of beatings occurring; it is a natural fact that people get angry from time to time, and
so numerous beatings would be expected to follow. When people get beaten, they often
experience anger (among other emotions), and herein lies the inconsistency.

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Following from the earlier example, Martell beat Deletha because she made him angry and he
wanted to feel better. Thus, on the one hand, he wants his anger to be alleviated. The maxim
underlying his action, however, generates a world in which more anger would come about.
This would be true for him as well, since the people he angers would beat him, causing him to
experience anger at being beaten. In short, he is seeking to lessen his anger, and this is
straightforwardly inconsistent. Another way to characterize the situation is to say that Martell
is acting on a maxim which, when universalized would be self-defeating, since it would negate
the very goal he is trying to accomplish (anger alleviation).

Simply, an act can be said to be morally right in the opinion of Kant based on the following
four basic steps (a) ascertain the individual’s motive; (b) ascertain the individual’s maxim; (c)
universalize the maxim; and (d) assess the universalized maxim for consistency.

Categorical Imperative: Persons as Ends

According to Kant “Act so that you treat humanity, whether in your own person or in the person
of any other, always as an end and never as a means only”. In this context, the difference
between means and ends is closely related to the difference between people and things. An
inanimate object-a “thing”-has value only insofar as someone values it; it does not have value
“in itself,” meaning it would have no value at all without someone to value it. It is therefore
permissible to use things as I see fit in order to accomplish my goals. A computer for example,
is a thing and so has no value in itself. Therefore, since you own your computer, you can use it
as a means to your ends-as a tool for helping you achieve what you want. Treating your
computer as a mere stepping stone in this way does not morally wrong the computer, for it is
not the sort of thing that can be wronged. You can even choose to throw it out the window if
you get frustrated with it (as long as no one outside the window will be injured).
In all these ways, people are different. People do not need to be valued by others in order to
have value. This formulation underscores Kant’s belief that every rational creature has inherent
worth. This worth does not result from any quality other than the sheer possessing of
rationality. Rational human being possesses what Kant termed an “autonomous self-legislating
will.” In other words, they can evaluate their actions, make rules for themselves, and direct
their conduct according to these self-imposed rules. Kant sums his “categorical imperative” as
“one ought never to act unless one is willing to have the maxim on which one acts to become
a universal law”. To Kant (1959) therefore, good will, and only good will, can be universalized.
Again Kant indicates that you may not treat another person as a mere means. You may not
simply use another person in an effort to further your own goals. People, unlike computers, are
not mere stepping stones and may not be treated as such. This is Kant’s idea behind the moral
command that we are always to treat people as ends and never as means only; we must always
recognize that people are valuable in themselves (are ends in themselves). He also uses the
terminology of respect and dignity to capture this idea; we are always and everywhere to
demonstrate respect for persons, to recognize the inherent dignity they possess (because of their
rational capacities). Kant also makes clear that this is why all people are moral equals. Each
person is an end in himself or herself to the same degree as all other persons, and so no one is
more valuable – more morally important –than anyone else.

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Informing our views

Nonetheless, duties and principles clearly do inform our views of how people should treat each
other at work. An exclusively consequentialist view of ethics also entails methodological
problems of forecasting reliably what the consequences of an action may be and of deciding
how to measure those consequences. Some form of utilitarianism can be very unjust to small
minorities, by allowing their unhappiness (i.e. as a result of some proposed action) to be offset
by the increased happiness of a much larger number. Again, however, we can hardly deny that
our assessment of the likely consequences of different actions plays a part in our view of
acceptable and unacceptable behaviour in an organization.

Case 1 – Off shoring example

A UK-based company thought about an opportunity to ‘offshore’ part of its operation to a

lower-cost Anglophone country. The shareholder-centred view would place emphasis on the
unit cost savings to be achieved by moving the operation to a lower-cost area, provided that
the required quality of service can be maintained. Other things being equal, lower unit costs
obviously allow higher margins and improved rewards to shareholders. However, the
assessment would also take into account the possibility of additional risks to be managed, such
as security and quality control issues. Furthermore, this view would also consider the
competitive implications of the decisions: if other suppliers all outsource and reduce their
prices to customers, a decision not to do the same could damage the company. On the other
hand, being different could be a viable competitive stance for one or more competitors,
particularly if some customers are concerned about reduced quality of service from off shoring:
at one point, NatWest in the UK seemed to take this stance in its advertising.

A deontological approach to the ethics of off shoring would focus on aspects of the proposal
that might be in breach of clear principles and duties. While no business can reasonably accept
a general duty to keep existing employees on the payroll for ever, a contemplation of duties
might cause a company to do as much as possible to soften the impact of the job losses,
including the possibility of internal transfer, retraining, outplacement and more-than-minimum
redundancy packages. A utilitarian analysis would seek to identify all who would be affected-
anywhere in the world – by the proposed off shoring decision and then assess the impact
(positive or negative) on each person (or, more realistically, group). This would allow a sort of
“trial balance” of the consequences to be drawn up and an evaluation of the net impact on
aggregate happiness. Necessarily in this method, the reduction in happiness for others, such as
those who are made involuntarily redundant, is offset by the extra happiness created for some-
those who get offshore jobs, for example. Obviously, this is of little comfort to the former
group, which illustrates one of the important criticisms of the utilitarian approach.

Ethical decision-making at work

How, then, are ethical choices to be made by people working for organizations? No simple and
universal answer is available – ethical awareness is something that can be cultivated and the
different perspectives will often help to shed light on a particular dilemma. Some perspectives
23
may appear to be better suited to particular situations: whereas, for example, it is difficult to
avoid some sort of consequentialist component in thinking about how a company should act, it
is also clear that duty-based (or ‘moral compass’) arguments must also weigh heavily in
thinking about the ethical treatment of people such as employees. The German philosopher
Kant’s view that we should always treat other people as ends in themselves and never simply
as means is surely an important principle for decent human resource management and one that
would often be seen as more important than the prospect of short-term gain.

Personal integrity and individual values are important elements in ethical decision-making at
work, but the increasingly common company, professional or industry codes of conduct may
also provide support and guidance. This is not to say that these ethical ‘resources’ will always
provide clear and comfortable guidance – sometimes, people in organizations will experience
tension between conflicting demands of, say, their own personal values and the demands placed
on them by their organization. If these conflicts become intolerable and cannot be resolved
through normal means, then an individual may decide to become a ‘whistle-blower’ in the
public interest, by taking the high-risk approach of placing the problem in the public domain
for resolution. Code of conduct can help reduce the risk of painful situations like this by
providing a published set of values to which the individual can appeal, rather than taking the
risk wholly personally.

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 CHAPTER THREE

RIGHTS AND DUTIES

This chapter addresses the issue of rights and duties as it pertains to business.

Introduction

While rights are often proclaimed, and duties sometimes acknowledged, there is often a lack
of clarity in the discussion of rights and duties once it proceeds beyond proclamation and
acknowledgement. Just what are rights and duties?

Rights

A right should be understood as a “moral claim.” The first part of this definition, the stipulation
that a right is moral, is meant to indicate that it is not necessarily recognized by any
conventional system. A legal right for example, is held by a certain individual or group of
individuals just in case the government decides that the right is held. Whether or not a legal
right is moral is an open question. The second part of the definition indicates that a right is a
claim. The legal scholar Wesley Hohfeld (1919) was the first to use this terminology, and moral
philosophers have followed this practice. A claim, according to Hohfeld (1919), is a particular
type of right, one which is correlative with a duty on the part of the person(s) against whom
the right is held. Thus, my moral right not to be harmed by others is therefore to be understood
as a moral duty on the part of others not to harm me. With respect to work, an employee’s right
to safety in the workplace is held against his/her employer, since the employer has the duty to
provide him/her with a safe work environment; he/she does not hold this right against members
of the general public, since they have no such duty.

Sources of rights

There are four basic sources of rights. Some rights we have as humans, without regard to
position or citizenship, or wealth or skill. Some rights we have by law. Some rights accrue to
us by reason of our position. Finally, some rights have their source in contract. Rights from
each of these sources imply duties. Depending on the source of the rights, the corresponding
duty fall upon individuals or groups that might be in daily contact with us, or might be quite
remote from us.

Human Rights

Human rights is a term that is used very loosely. The concept has roots extending back hundreds
of years and is built into American legal system as a foundation. A number of philosophers
have noted that human rights can be grounded in several different theories and that it is a sign
of the strength of the argument for human rights that different approaches lead to the same
conclusions.

25
Legal rights

These are rights granted to citizens of a government unit by law. They are enforceable through
court systems. Some legal rights embody human rights; others do not. There is both a legal
right and a human right to life, which manifests itself in a duty not to randomly kill people.
Different jurisdictions can and do grant different legal rights, but the hierarchy of jurisdictions
is made clear by legal systems. We may well ask where governments get the power to grant
rights and impose duties. In a democracy, the standard answer is that governments derive their
power from the people. Some individuals are elected by the voting citizens to represent them
(the voters) in deciding what government shall do, and how it shall do it.

Social contract theory is a view in philosophy that explains government power by saying that
it is as if all the citizens yield by contract some of their individual rights in order to obtain the
benefits of social stability available only through a recognized government. The theory further
states that each of us gives up some rights to government and in return gains some rights that
we would not otherwise have. Again, rights are worthless without corresponding duties.
Citizens who have agreed to give up some rights to strengthen others also take on some duties
as part of the social contract.

Position rights

A third source of rights is position. If he has probable cause to do so, a policeman has the right
to stop a motorist, require him to get out of his car, make a physical search of his person,
handcuff him/her and take him/her to jail. These are powerful rights. It is important to observe
some overlap between legal rights and position rights. The policeman has his authority by law
as well as by position, but there is no law authorizing chief financial officer or accounts payable
clerks to disburse certain amounts of company funds.

Positions carry duties as well as rights. Employees have a duty to carry out the responsibilities
of their job. According to the rights and duties approach to ethics, an individual’s actions will
be moral if he recognizes the rights of others and observes the duties imposed on him by those
rights. Everyone has a duty not to randomly kill other people.

Contract rights

The fourth and final source of rights is by contract. Contracts are agreements between two or
more parties. The agreement of both parties to the contract initiates rights and duties spelled
out in the contract, and they will remain in force as long as the contract is valid. Contracts
obviously play an important role in managerial ethics. Labour-management contracts spell out
the terms and conditions of employment for employees who are covered under a collective
bargaining agreement. Such contracts typically oblige managers to pay certain wages and
benefits, provide certain working conditions and refrain from firing employees except under
specified circumstances. Contracts may also affect relations with customers, suppliers and
other company stakeholders.

Kant’s Duty-Based Approach

26
Immanuel Kant is the philosopher most often associated with the rights and duties approach to
morality. Kant emphasizes duties rather than rights. He identifies two kinds of rules (he calls
them “imperatives”), hypothetical and categorical. Hypothetical imperatives are conditional. If
you want to be a good flute player, then you ought to practice every day. The categorical
imperative is not conditional: it applies always and everywhere, according to Kant. He phrases
this categorical imperative in three different ways:

a) Act only according to that maxim whereby you can at the same time will that it should
become a universal law.

b) Act in such a way that you always treat humanity, whether in your own person or in the
person of any other, always at the same time as an end and never as a means

c) Therefore, every rational being must so act as if he were through his maxim always a
legislating member in the universal kingdom as an end.

Kant gives the example of a man who borrows money, but then has difficulty coming up with
enough to pay it back. The question Kant poses is whether this individual can morally fail or
refuse to repay the borrowed money. He explains that a universal rule that says “repay loans
only if it is convenient” could not work because no one would lend money under such
circumstances. The same sort of analysis would apply to a rule that said “lie when it is
convenient or embarrassing to tell the truth.” The categorical imperative imposes duties on
everyone, all the time.

Taking all the different rights into account, it is clear that the universal duty required by the
categorical imperative fits best with human rights because they are not dependent on anything
else to be applicable. One could form a universal rule to obey the tax laws of the countries
where your business is conducted, but this already introduces a certain degree of contingency.
Even here, though, Kant’s approach seems to many to be too rigid.

Suppose that I am home at night reading a novel and my next-door neighbour knocks frantically
on my door. When I open the door, she has terror in her eyes and asks me to hide her because
her husband is trying to kill her. I tell her to hurry upstairs and go in the room to the right. One
minute later, her husband pounds on my door. When I open it, he asks me where his wife is
because he wants to kill her. Is the moral answer “upstairs to the right? Most people would say
not. This brings us back to the point made earlier, that no right is absolute. His right to be told
the truth is not made earlier, that no right is absolute. His right to be told the truth is not as great
as her right to life.

The Theory of Rights

According to the theory of moral rights, human beings have certain fundamental rights that
should be respected in all decisions: the right to free consent, privacy, freedom of conscience,
free speech, and due process (Cavanagh et al., 1981). A right is a capacity, a possession, or
condition of existence that entitles either an individual or a group to enjoy some object or state
of being. For example, the right to free speech is a condition of existence that entitles one to

27
express one's thoughts as one chooses (Duska, 2002). Rights theories distinguish between
negative and positive rights. In the case of negative rights, the duty is to allow the party to act
freely within the domain covered by the right. In the case of positive rights, the obligation is to
provide the party with a benefit of some type. The moral force of a right depends on its strength
in relation to other moral considerations applicable to the context in question (Jones et al.,
2007). According to rights theory, as long as the distribution of wealth in society is achieved
through fair acquisition and exchange, the distribution is a just one regardless of any degree of
inequalities that may ensue (Budd, 2004). The morally correct action is the one that a person
has the moral right to do, that does not infringe on the moral rights of others, and that furthers
the moral rights of others (Rachels, 1999; Velasques, 1998; Cavanagh et al., 1981; Schumann,
2001).
People who rely on rights theory to reason their actions emphasize the entitlement of
individuals (Cavanagh et al., 1981). Restrictions on behavior should prevent harm to others,
but unless your actions harm others, you should be free to do as you please. A manager making
a decision based on this theory should avoid violating the rights of others who may be affected
by the decision (Cavanagh et al., 1981).

Prima Facie Duties

This theory was propounded by William David Ross who published The Rights and the Good
(1930). In Ross’s theory, he believes there are duties or obligations which bind us morally. In
any moral decision, we must weigh the options with respect to the duties involved and from
the alternatives determine the duty that is most obligatory. To Barry (1979) an act may fall
under a number of rules at once … in such cases, each act is accompanied by a number of
motivational reasons which, in turn, appeal to moral duty: to be faithful to a contract, to help
someone, to render justice, to be loyal. Each of these moral duties provides grounds for doing
a particular action, but no single one provides sufficient grounds. The problem lies in choosing
the most obligatory duty.

Fisher and Lovell (2006) contend that prima facie evidence is a legal term that refers to
evidence that is deemed sufficient to establish a presumption of truth about an incident, unless
or until counter-evidence is discovered. Thus, we can define a prima facie obligation as one
that should be respected in one’s practice, unless and until a different prima facie obligation,
with a superior claim for adherence, is presented. According to Barry (1979), the term prima
facie means “at first sight” or “on the surface”. By prima facie duties, Ross means ones that at
first sight dictates what we should do when other moral factors are not considered. Stated
differently, prima facie duties are ones that generally obligate us, that is, ones that ordinarily
impose a moral obligation but do not apply in a particular case because of additional
circumstances. Thus, prima facie duties must be distinguished from an actual duty, that is, what
one should do after considering and weighting all the prima facie duties involved.

Ross (1930) and Barry (1979) identified 6 (six) types of prima facie duties which are outlined
as follows:

28
 (1) The first they termed duties of fidelity which include duty not to lie especially in
conversation, to remain faithful in contracts, to keep to promises and to repair
wrongful acts.
(2) The second category of prima facie duties is/are duties of gratitude and this rest on
acts of other people towards the agents. Ross argues that we are bound by
obligations arising from relationships that exist between persons, such as those
between friends or between relatives and those between employers and employees.
(3) Another category of prima facie duties, are duties of justice which rest on the fact
or possibility of distributing pleasure or happiness in a manner which is not in
accordance with the merits of the people concerned.
(4) In addition to the above, the fourth category of prima facie duties are duties of
beneficence which rely on the fact that there are other people in the world whose
virtues, intelligence, livelihood or happiness can be improved by others. For
instance, the management board of an institution can improve the happiness of its
pensioners by voting an increment in the retirement funds. It is worth noting that
society seems to be becoming increasingly aware of duties of beneficence as the
concept of social responsibility broadens.
(5) The fifth category of prima facie duties is/are the duties of self-improvement. This
duty rest on the fact that we can improve our own condition of virtue, intelligence,
or happiness. For instance, suppose an employee in company X receives an offer
in company Y that promises opportunities for personal growth and development,
than his present employment. Then on the basis of the duty of self-improvement, he
would take the offer in company Y. Here, a number of duties operate including
fidelity and gratitude.
(6) The last category of the prima facie duties is the duty of non-injury (non-
malfeasance), that is, those that do not injure others. Although not injuring others
incidentally means doing them good, Ross interprets the avoidance of injuring
others as a more pressing duty than beneficence.
In sum, the six prima facie duties do not represent a complete list of recognizable duties, but
are duties that we accept willingly. In the case of two or more obligatory duties, we take the
one with the greatest amount of rightness over wrongness (Barry, 1979).

29
 CHAPTER FOUR

JUSTICE AND FAIRNESS

The implications of fairness and justice on business sustainability are enormous. Employees
who perceive injustice may experience low morale and commitment leading to poor
performance. Injustice may also affect the reputation of a business and therefore, managers are
expected to demonstrate justice and fairness in all managerial decisions in order to maintain
stakeholder worth.
Introduction
Philosophers and social commentators were writing about justice long before management
scientists were. Among the ancient Greeks, for example, Herodotus' History and Plutarch's
Lives described the achievements of the lawgiver Solon, who reformed Athenian government.
These are the prescriptive approaches, since they seek to logically determine what sorts of
actions truly are just. As such, they reside comfortably within the domain of business ethics.
While organizational justice borrows from these older traditions, it has its own distinctions.
Unlike the work of philosophers and attorneys, managerial scientists are less concerned with
what is just and more concerned with what people believe to be just. In other words, these
researchers are pursuing a descriptive agenda. They seek to understand why people view
certain events as just, as well as the consequences that follow from these evaluations. In this
regard, justice is a subjective and descriptive concept in that it captures what individuals believe
to be right, rather than an objective reality or a prescriptive moral code. As defined here,
organizational justice is a personal evaluation about the ethical and moral standing of
managerial conduct. It follows from this approach that producing justice requires management
to take the perspective of an employee. That is, they need to understand what sorts of events
engender this subjective feeling of organizational justice. On this important competency, many
fall short.

Fairness and justice is an approach to ethical reasoning that includes several somewhat different
concepts under one umbrella. This approach defines the moral act as the act that treats similarly
situated people with similar ways with regards to both process and outcomes, and with a sense
of proportionality. Most of us were born in organizations (hospitals), learned much of what we
know in organizations (schools), work in and are compensated by organizations and, when we
die, will very probably be buried or cremated by an organization. In all of these contacts
between individuals and organizations, there is some sort of exchange. We exchange labour
for wages and pension benefits. We exchange taxes for protection and other governmental
services. We exchange money for goods and services. Our interactions with organizations and
the people who constitute them are basically unceasing. In all these interactions, we have
expectations both for what we will give and for what we will get. When these expectations are
not met, we are disappointed, or angry, or sad. Our lives are affected, on a daily basis, by the
terms of exchanges. One of our most basic expectations in the wide variety of exchanges that
make up our daily lives is that we will be treated fairly.
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The Principle of Justice
The principle of justice is another form of deontological ethics which has been used
synonymously with ‘fair play’. The principle of justice could be understood as the obligation
to give each party its due (Reeck, 1979). The maximum principle of justice was propounded
by John Rawls in his Theory of Justice (1971). Rawls (1971) has provided a relatively modern
statement on what is essentially deontological thinking, and his work has had considerable
impact on modern moral philosophy. To Barry (1979) central to Rawls’ theory is the question
of establishing principles of justice, what principles will serve as the basis for justice in society.
In answering, Rawls asks us to imagine a “natural state”, a hypothetical state of nature in which
everybody is ignorant of their talents and socioeconomic conditions. He calls this the “original
position”, in this position, people share certain characteristics. The people are mutually self-
interested; rational, that is, they more or less accurately know their interests; needs and
capacities. Given these assumptions Rawls then asks what people in the original position
would be likely to formulate when asked to choose a fundamental principle of justice to be
followed. Two principles would be chosen according to him and these are; the liberty principle
and the difference principle.

Rawls argues further that they would not select absolute equality in the distribution of benefits
because they would recognize that some of them would put forth greater efforts, have greater
skills, develop greater competences and so on. They would not agree to absolute inequality
based on effort, skill or competence because they would not know who among them had those
qualities and consequently who among them would receive the greater and the lesser benefits.
Instead, they would develop a concept of conditional inequality, where differences in benefits
had to be justified, and then propose a rule that those differences in benefits could be justified
only if they could be shown to result in compensating benefits for everyone, and in particular
for the least advantaged members of their society (Hosmer, 1987).

By the liberty principle Rawls means to say that people in the original position would expect
each person participating in a practice or affected by it to have an equal right to the greatest
amount of liberty that is compatible with a like liberty for all. And by the difference principle
Rawls means that people in the original position would allow inequality only insofar as it serves
each person’s advantage and arises under conditions of equal opportunity (Barry, 1979).
Equality simply means all persons should be treated equally or the same. To Rawls (1971),
equality means the impartial and inequitable administration and application of rules which
define a practice.

To Barry (1979) crucial to any theory of social justice is the determination of when inequality
is permissible. After all, a just society is not one in which all are equal, but one in which
inequalities are justifiable. Rawls addresses this problem with his difference principle; the
difference principle defines what kinds of inequalities are permissible. It specifies under what
conditions the equal liberty principle may be violated. For Rawls, equality is not contingent.
It does not depend on something else, such as on the greatest happiness for the most people,
for its justification. Equality is fundamental and self-justifying. Inequality is permissible only

31
if in all likelihood the practice involving the inequality works to the advantage of every
individual affected (Barry, 1979).

Closely related to the concept of justice is reciprocity. Reciprocity to Rawls (1971) is the
principle that requires that a practice be such that all members who fall under it could and
would accept it and be bound by it. It requires the possibility for mutual acknowledgement of
principles by free people, having no authority over one another that make the idea of reciprocity
fundamental to justice and fairness.

The theory of justice requires decision makers to be guided by equity, fairness, and impartiality
(Cavanagh et al., 1981). It relies on three types of moral prescriptions:
(a) That individuals who are similar in a relevant respect should be treated similarly and
individuals who are different in a relevant respect should be treated differently in proportion to
the difference between them;
(b) That rules should be administrated fairly and clearly; and
(c) That individuals should not be held responsible for matters over which they have no control,
and should be compensated for the cost of their injuries by those responsible for these injuries
(Cavanaugh et al., 1981).
Decision making and reasoning based on the theory of justice therefore focus on the
distributional effect of actions (Cavanagh et al., 1981).

Definition of Fairness

One of the most complete sentences spoken by many children (particularly if they have
siblings) is “That’s not fair!” A central issue in considerations of justice is the issue of what we
mean by being fair. Is it fair to provide equal opportunity to all, even if the outcomes are
unequal? Is it fair to distribute some resources (welfare benefits, charitable donations) based
on need and other resources (high salaries, prestigious positions) based on merit? Is it fair to
give preference to an individual now because she is a member of a group that was denied equal
treatment in the past?

The individual manager’s decision is constrained by the system involved. The kinds of systems
under discussion are not information technology systems but such things as standard hiring
procedures, compensation systems such as salary ranges and guidelines for increases or stock
option awards, and company-wide directives for the conduct of layoffs. These various systems
can be seen as rules for procedural fairness, whereas individual decisions by managers about
resource allocations can be seen as examples of distributive fairness.

Equity theory
Perhaps the earliest theory of distributive justice can be attributed to Aristotle. In his
Nicomachean Ethics, the philosopher maintained that just distribution involved "something
proportionate," which he defined as "equality of ratios." Specification, and a bit of
rearrangement, led Adams (1965) to represent his influential equity theory of distributive
justice with the following equation? According to equity theory, we are interested in how much
we get (outcomes) relative to how much we contribute (inputs). Such a ratio is meaningless,
32
however, unless anchored against some standard. To accomplish this, we examine the
outcomes and inputs of some referent. Usually, though not necessarily, this is another person
who is similar to us. Things are "equitable" when the ratios, not the individual terms, are in
agreement. When the ratios are out of alignment, employees may feel uneasy. They are
motivated to "balance" the equation by modifying the terms. For example, one who is
underpaid might reduce inputs by a corresponding amount. This simple equation leads to a
number of predictions, some of which are not obvious. For example, an individual who earns
less than another may still be satisfied, as long as he or she also contributes less. Likewise, a
person who is paid equally to another may feel unjustly treated if he or she also contributes
substantially more to the organization. These consequences often do not occur to managers,
but they make good sense in light of equity theory. But by far the most famous prediction from
equity theory is the "over-reward effect"? That is, what happens when the equation is
unbalanced in one's own favour?
According to equity theory, when one is over paid the two sides of the ratios are misaligned.
Consequently, one must work harder (i.e., increase inputs) in order to be equitable. These
effects seem to occur. Greenberg (1988) studied managers who were temporarily moved to
higher or lower-status offices than their position actually warranted. Those moved to higher-
status offices boosted performance, whereas those moved to lower-status offices showed
decrements. These gains and losses later disappeared when individuals were returned to status-
appropriate office spaces. Apart from its impact on performance, inequity can also cause
workplace sabotage (Ambrose, Seabright, & Schminke, 2002) and employee theft (Greenberg,
1993). It is personally painful for employees, as distributive injustice is associated with stress
symptoms (Cropanzano, Goldman, & Benson, 2005). Recent advances in distributive justice.
There is more to distributive justice than simple equity. These different standards can be in
conflict with one another. Generally speaking, we can distinguish three allocation rules that
can lead to distributive justice if they are applied appropriately: equality (to each the same),
equity (to each in accordance with contributions), and need (to each in accordance with the
most urgency). These rules map onto Aristotle's famous dictum that all men wish to be
treated like all other people (equality), like some other people (equity), and like no other
person (need). While it is no mean task to find the correct alchemistic combination among
these three allocation rules, there are three basic suggestions that can be helpful.
First, it is useful to consider one's strategic goals (Colquitt, Greenberg, & Zapata-Phelan, 2005).
Equity tends to provide individual rewards for high performance, whereas equality tends to
build esprit de corps among teammates. If one desires to stimulate individual motivation, err
toward equity. If one desires to build group cohesion, err toward equality. We shall return to
this issue later when we discuss reward systems.
Second, organizations can balance these considerations by mixing equality and equity together.
It need not be either-or. Experiments with work groups suggest that it is often best to provide
team members with a basic minimum of benefit. This is analogous to equality. Above that
minimum, however, it can be useful to reward based on performance. This is analogous to
equity. This sort of hybrid approach has been adopted by many organizations. Their
compensation systems contain a "fixed" base; everyone in a particular job class and with a
particular tenure receives this base. Employees are also encouraged to go beyond this
33
minimum, earning additional pay through the allocation of merit bonuses (Milkovich &
Newman, 2005). Third, different rewards should be provided in accordance with different
rules. Equity works well for some things, such as money, but less well for others, such as status
symbols. Among American managers, it is often seen as fair to allocate economic benefits in
accordance with equity (i.e., those who perform better might earn more). On the other hand,
social-emotional benefits, such as reserved parking places, are best allocated equally (Martin
& Harder, 1994). Employees often see themselves and their peers as belonging to a group or,
in the most beneficial case, a community. Allocating social-emotional rewards equally signals
that everyone in the organization matters and is worthy of respect.

Three Components of Justice

Research has shown that employees appraisee three families of workplace events. They
examine the justice of outcomes (distributive justice), the justice of the formal allocation
processes (procedural justice), and the justice of interpersonal transactions they encounter with
others (interactional justice). They can be meaningfully treated as three components of overall
fairness (Ambrose & Arnaud, 2005; Ambrose & Schminke, 2007), and the three components
can work together. However, if one's goal is to promote workplace justice, it is useful to
consider them separately and in detail. This is because each component is engendered in
distinct ways, arising from different managerial actions.

Distributive Justice
Researchers call the first component of justice distributive justice because it has to do with the
allocations or outcomes that some get and others do not. Distributive justice is concerned with
the reality that not all workers are treated alike; the allocation of outcomes is differentiated in
the workplace. Individuals are concerned with whether or not they received their "just share."
Sometimes things are distributively just, as when the most qualified person gets promoted.
Other times they are not, as when advancement goes to corporate "insiders" with a political
relationship to upper management.

Procedural Justice
Procedural justice is intended to achieve distributive justice. In other words, the ultimate
concern when using fairness and justice as an approach to ethics is with results – how do
resources end up being distributed, and is this distribution fair and just? Procedural justice is
instrumental, in that it is concerned with achieving some result. Procedural justice serves two
important purposes: it makes it more likely distribution of resources will occur and it
encourages the perception that results are fair because procedures were fair.

Obviously not all procedural systems will be equally fair, and some may be patently unfair. A
system that grants options for large amounts of stock to a few senior managers and none to
anyone else is at least open to a charge of unfairness. A system that grants a greater chance for
admission to a selective university to children of alumni readily creates a perception of
unfairness on the part of applicants and their parents who are not alumni. Many procedural
34
systems are designed to assure compliance with laws and regulations, particularly in areas
relating to human resources. While it is certainly important to comply with the law, both in the
design of procedural systems and in their application, doing so does not necessarily guarantee
that decision will be moral.

Procedural justice refers to the means by which outcomes are allocated, but not specifically to
the outcomes themselves. Procedural justice establishes certain principles specifying and
governing the roles of participants within the decision-making processes. In three papers,
Leventhal and his colleagues (Leventhal, 1976, 1980; Leventhal, Karuza, & Fry, 1980)
established some core attributes that make procedures just: (a) A just process is one that is
applied consistently to all, free of bias, accurate, representative of relevant stakeholders,
correctable, and consistent with ethical norms. Though surprising to some, research has shown
that just procedures can mitigate the ill effects of unfavourable outcomes. Researchers have
named this the "fair process effect." To illustrate let us consider the case of strategic planning.
Kim and Mauborgne (1991, 1993) reported that when managers believed that their
headquarters used a fair planning process, they were more supportive of the plan, trusted their
leaders more, and were more committed to their employers. In their well-known book, Blue
Ocean Strategy, Kim and Mauborgne (2005) explain why. Fair processes lead to intellectual
and emotional recognition. This, in turn, creates the trust and commitment that build voluntary
cooperation in strategy execution.
Procedural injustice, on the other hand, produces "intellectual and emotional indignation,"
resulting in "distrust and resentment" (p. 183). Ultimately, this reduces cooperation in strategy
execution. We can go further. Procedural justice seems to be essential to maintaining
institutional legitimacy. When personnel decisions are made, individuals are likely to receive
certain outcomes. For instance, one may or may not be promoted. According to Tyler and
Blader (2000), outcome favourability tends to affect satisfaction with the particular decision.
This is not surprising. What is more interesting is that procedural justice affects what workers
believe about the organization as a whole. If the process is perceived as just, employees show
greater loyalty and more willingness to behave in an organization's best interests. They are also
less likely to betray the institution and its leaders.

Interactional Justice
In a sense, interactional justice may be the simplest of the three components. It refers to how
one person treats another. A person is interactionally just if he or she appropriately shares
information and avoids rude or cruel remarks. In other words, there are two aspects of
interactional justice (Colquitt, Conlon, Wesson, Porter, &Ng, 2001). The first part, sometimes
called informational justice refers to whether one is truthful and provides adequate
justifications when things go badly. The second part, sometimes called interpersonal justice,
refers to the respect and dignity with which one treats another. As shown in Table 1, both are
important. Because interactional justice emphasizes one on-one transactions, employees often
seek it from their supervisors. This presents an opportunity for organizations. In a quasi-
experimental study, Skarlicki and Latham (1996) trained union leaders to behave more justly.
Among other things, these leaders were taught to provide explanations and apologies
35
(informational justice) and to treat their reports with courtesy and respect (interpersonal
justice). When work groups were examined three months later, individuals who reported to
trained leaders exhibited more helpful citizenship behaviors than individuals who reported to
untrained leaders.
Similarly situated individuals and similar treatment

Any procedural system is general and individual distributions of resources are specific. The
ethical sensitivity, or lack thereof, of the individual manager making an individual decision is
important to the ultimate attainment of distributive justice. In order for a manager to make
decisions that are ethical according to the perspective of fairness and justice, she must be able
to determine who are similarly situated individuals and what constitutes similar treatment.
Sometimes this is easy, and sometimes it is not.

Why Employees Care About Justice

Managers too often assume that justice, in the minds of employees, means only that they
receive desirable outcomes. These managers are confusing outcome favorability with outcome
justice. The former is a judgment of personal worth or value; the latter is a judgment of moral
propriety. Evidence shows that outcome justice and outcome favorability are distinct (Skitka,
Winquist, & Hutchinson, 2003) and correlated between .19 and .49, depending on where and
how the variables are measured (Cohen-Charash & Spector, 2001). In so many words, it's
important to get what you want, but other things matter as well. For this reason it is useful to
consider three reasons justice matters to people (for details, see Cropanzano, Rupp, Mohler, &
Schminke, 2001).
Long-range benefits: People often "sign on" for the long haul. Consequently, they need to
estimate now how they are likely to be treated overtime. A just organization makes this
prediction easy. According to the "control model," employees prefer justice because it allows
them to predict and control the outcomes they are likely to receive from organizations.
According to the control model of justice, appropriate personnel policies signal that things are
likely to work out eventually. Most of us understand that every personnel decision cannot go
our way, but justice provides us with more certainty regarding our future benefits. For this
reason the control model proposes that people are often motivated by economic and quasi-
economic interests (cf. Tyler & Smith, 1998). People want fairness because fairness provides
things they like. There is more than a little truth to this idea. For instance, when individuals are
rewarded for successfully completing a task they report being happy (Weiss, Suckow, &
Cropanzano, 1999) and having pride in their performance (Krehbiel & Cropanzano, 2000).
This is so even when their success resulted from cheating. At the same time, these individuals
also report feeling guilty for their unfair behavior, suggesting that individuals can recognize
and react to injustice, even when it is personally beneficial. There is sometimes a certain tension
between getting what we want and playing by the rules. The two tend to go together, but less
so than many believe. For example, pay satisfaction is only modestly correlated with
perceptions of pay justice (Williams, McDaniel, & Nguyen, 2006). If "justice" were based
exclusively on obtaining benefits, then one would expect a higher association. Later we shall
discuss evidence suggesting that individuals can accept an unfortunate outcome as long as the

36
process is fair and they are treated with interpersonal dignity (e.g., Goldman, 2003; Skarlicki
& Folger, 1997).
Social considerations: People are social animals. We wish to be accepted and valued by
important others while not being exploited or harmed by powerful decision-makers. In the
"group-value model," just treatment tells us that we are respected and esteemed by the larger
group. We are also at less risk for mistreatment. This sense of belonging is important to us even
apart from the economic benefits it can bring (Tyler & Blader, 2000; Tyler & Smith, 1998). As
you might expect, this can pose a potential problem for organizations. To the extent that justice
signals our value to an employer, the more we care about the organization the more distressed
we become when we are treated unfairly. Brockner, Tyler, and Cooper-Schneider (1992)
assessed the commitment of a group of employees before a layoff occurred. After the
downsizing those people who were initially the most committed responded the most negatively
to the downsizing. When we treat workers unfairly, we may end up doing the most harm to
those who are most loyal.
Ethical considerations: People also care about justice because they believe it is the morally
appropriate way others should be treated (Folger, 2001). When individuals witness an event
they believe is ethically inappropriate, they are likely to take considerable risks in the hopes of
extracting retribution (Bies & Tripp, 2001, 2002). Such unfortunate (from the organization's
point of view) reactions may occur even when an employee simply witnesses the harm and is
not personally wronged (Ellard & Skarlicki, 2002; Spencer & Rupp, 2006). Consider, for
example, a day-to-day problem faced by many service workers. When these employees see a
customer treating one of their coworkers unfairly, the observing worker is apt to experience
stress symptoms. Through this mechanism, injustice may spread ill will throughout a
workgroup.

Justice and Organizational Identity

More broadly, we suggest that justice can be a core value that defines an organization's identity
with its stakeholders, both internally and externally. When justice is espoused as a core value
of an organization's management philosophy and en acted through a set of internally consistent
management practices, it can build a "culture of justice," a system-wide commitment that is
valuable and unique in the eyes of employees and customers, and tough to copy in the minds
of competitors. And that can translate into the makings of sustainable competitive advantage.
In our next section, we will look at management practices that can help develop a culture of
justice. How to Create Perceptions of Justice We will now turn to common and important
workplace situations, discussing a variety of managerial and personnel functions provide a
lesson for promoting justice, including some normative recommendations regarding how
individuals should be treated. And in each case we will return to one or more of our conceptual
observations, such as the fair process effect and the two-factor model, illustrating how these
phenomena affect real-life organizations.

37
Selection Procedures: Positive Job Candidates
For most job candidates, the recruiting and selection process is their first introduction to an
organization. How they are treated at this time can have ramifications later. Applicants who
feel justly treated are more likely to form positive impressions of the organization (Bauer et
al., 2001) and recommend it to their friends (Smither, Reilly, Millsap, Pearlman, & Stoffey,
1993). And the flip side is also true. When applicants feel unjustly treated they are more likely
to consider litigation as a potential remedy (Bauer et al., 2001). This research suggests that it
pays for organizations to put their best foot forward. By treating applicants justly in the hiring
process, organizations are setting the foundation for a relationship of justice and trust when
those applicants become employees. The research on job candidates' reactions to recruiting and
hiring processes suggests that it is about much more than whether or not someone gets the job.
Further, because applicants don't often know why they didn't get the job or the qualifications
of the person who did, distributive justice is less of a concern in selection. However, managers
do need to be mindful of procedural and interactional justice. It is also important to realize that
the selection process begins with recruiting and initial communication, and encompasses all
contact with job candidates up to and including extending an offer and rejecting an individual
for a job (Gilliland & Hale, 2005). In terms of procedural justice, research has identified two
broad sets of concerns: Appropriate questions and criteria are critical for procedural justice.
Job candidates expect interview questions and screening tests to be related to the job, or at least
to appear to be related to the job (Gilliland, 1994; Ryan & Chan, 1999). Overly personal
interview questions and some screening tests, such as honesty tests, are often seen as
inappropriate and an invasion of candidates' privacy (Bies & Moag, 1986; Kravitz, Stinson, &
Chavez, 1996). Adequate opportunity to perform during the selection process means giving job
candidates the chances to make a case for themselves and allowing sufficient time in interviews
(Truxillo, Bauer, & Sanchez, 2001). If standardized tests are used to screen applicants, justice
can be enhanced by allowing candidates to retest if they feel they did not perform their best
(Truxillo et al, 2001). On the face, these two criteria seem reasonable and pretty
straightforward. However, when compared with recommended hiring practices, managers are
often faced with a "justice paradox" (Folger & Cropanzano, 1998). That is, many of the
selection procedures with the highest predictive validity? Those that are the best screening
tools? Are unfortunately those that fail to satisfy these justice concerns? Consider cognitive
ability and personality tests. These screening methods have high demonstrated validity
(Schmidt & Hunter, 1998), but both are seen by job applicants as not particularly fair (Steiner
& Gilliland, 1996). Questions on these tests are often not related to the job, and applicants don't
feel they have an opportunity to present their true abilities. The converse is also observed with
the justice paradox. Traditional unstructured interviews have long demonstrated weak
predictive validity, not much better than chance (Huffcutt & Arthur, 1994). However, job
applicants perceive these interviews as having high procedural justice because they are able to
demonstrate their qualifications (Latham & Finnegan, 1993). Adding structured situations and
questions to the interview increases predictive validity, but decreases perceptions of procedural
justice. So how can this justice paradox be managed effectively? We have three suggestions.
First, there are some screening tools that have both predictive validity and procedural justice.
Work sample tests and performance-based simulations demonstrate reasonable predictive
38
validity (Roth, Bobko, & McFarland, 2005) and are also seen as procedurally just (Steiner &
Gilliland, 1996). A second solution is to modify existing screening tools to increase job
applicants' perceived procedural justice. Smither and colleagues (1993) found that cognitive
ability tests with concrete, rather than abstract, items tended to be viewed more positively by
job applicants. Based on the observation that applicants perceive greater justice in unstructured
interviews, Gilliland and Steiner (1999) suggest a combined interview that has both structured
behavioral questions to maximize predictive validity and unstructured questions to allow
applicants the "opportunity to perform."
The third suggestion is based on our earlier discussion of interactional justice. Recall that
interactional justice can attenuate the negative effects of procedural injustice. Research has
demonstrated that interactional justice is very important for job candidates (Bies & Moag,
1986; Gilliland, 1995). With attention to considerate interpersonal treatment, honest
information, and timely feedback, organizations can create hiring processes that embody
interactional justice. Research has demonstrated that the informational components are
particularly important if there are unanticipated delays or unusual screening procedures
involved in the process (Rynes, Bretz, & Gerhart, 1991).

Reward Systems: Justly Balancing Multiple Goals

At the most basic level, rewards systems need to accomplish two goals: They need to motivate
individual performance, and they need to maintain group cohesion. While both goals are
worthwhile, distributive justice research tells us that it is difficult to accomplish them
simultaneously. Equity allocations, which reward for performance, can spur individual effort.
But the resulting inequality that is likely to occur can be disruptive. In a study of academic
faculty, Pfeffer and Langton (1993) examined wage dispersion in their home departments.
When wage dispersion was high, faculty reported less satisfaction and less collaboration with
colleagues. Overall research productivity dropped as well. This is not what merit pay is
supposed to do. Paying everyone the same thing, though, is not the answer either. Indeed,
equality distributions can boost group harmony, but they bring troubles of their own. A key
problem is one of external equity. High-performing employees, or those with rare skills, may
be worth more in the external marketplace. If their salaries are "capped" to maintain internal
equality, these workers may seek employment elsewhere. This is just another way of saying
that no matter how people are paid, not everyone will be satisfied. How then to position
rewards? The research discussed earlier underscores an opportunity. To be sure, individuals
who do not receive the compensation they desire will want more. However, they often remain
loyal to their employer if the pay administration procedures are viewed as fair. Consequently,
if an organization needs to maintain external equity, it can do so and risk internal inequality,
but only as long as the allocation process is just. To illustrate, McFarlin and Sweeney (1992)
surveyed more than 600 banking employees. As expected, when distributive justice was low,
workers reported less pay satisfaction and less job satisfaction. This is bad news, but it is
partially compensated for by the procedural justice results.
When procedural justice was high, workers experienced higher organizational commitment and
a positive reaction to their supervisors. This is the two-factor model in action. Individuals who
were not necessarily satisfied with their pay were still unlikely to derogate the organization
39
when the procedures were just. In addition to procedural justice, interactional justice can be
helpful in administering pay fairly. To illustrate this point, let us consider a situation that
everyone dislikes: pay cuts. Greenberg (1993) found that differences in how pay cuts were
managed at two manufacturing plants produced dramatically different outcomes. The key is
interpersonal treatment. In one, an executive politely, but quickly in about 15 minutes,
announced a 15% pay cut. In the other, an executive spent about an hour and a half speaking,
taking questions, and expressing regrets about making an identical pay cut. During a
subsequent 10-week period, employee theft was about 80% lower in the second case, and
employees in that plant were 15 times less likely to resign. No one wanted to have his or her
pay cut. But workers understood why it happened, appreciated the supportive interpersonal
treatment, and did not vent their ire on the organization.

Conflict Management: You Don't Have to Win

Thomas and Schmidt (1976) tell us that managers may spend about 20% of their time settling
disputes among employees, and they are not always successful (Schoorman & Champagne,
1994). Conflict resolution is likely to be most difficult when one or both parties are intransigent.
At this point the manager may listen to both disputants, but will need to impose a settlement
on them. This is called arbitration, and it is ultimately autocratic. As a result, arbitration may
sound risky because it hazards a distributive injustice; the settlement is imposed and not
approved in advance by other parties. There is good news, however. If any component of justice
is present during arbitration (distributive or procedural or interactional), the overall appraisal
of the situation will be improved (Goldman, 2003). Because arbitration preserves procedural
justice, an unfortunate outcome is less destructive than one might imagine. Or, we might say,
managers can make hard choices, but they have to make them justly (for details see Folger &
Cropanzano, 1998). This illustrates a simple yet powerful lesson from research on conflict
resolution: If you can't give people the outcome they want, at least give them a fair process.
Layoffs: Softening Hardship So far we have reviewed evidence pertaining to justice in the
context of hiring, reward systems, and conflict resolution. These are everyday events in a large
organization, and each will function more effectively if justice is taken into account. Even a
reader willing to indulge our arguments so far might be wondering whether justice helps when
something really bad happens.
Among common management situations that affect employees, downsizing is among the worst
(Richman, 1993). Layoffs have pernicious effects, harming the victims while undermining the
morale of survivors who remain employed. Though downsizing is a widely used cost-cutting
strategy, it is highly risky. The costs of workforce reductions often outweigh the benefits
(Kammeyer-Mueller, Liao, & Arvey, 2001). In these circumstances people not only lose, they
lose big. The event can be so negative that a sense of distributive injustice is virtually a given.
Can the guidelines suggested in this paper do any good at all? As a matter of fact, they can.
When a layoff is handled with procedural and interactional justice, victims are less likely to
derogate their former employers (Brockner et al., 1994, Study 1). Indeed, justice can have direct
bottom-line effects. Lind, Greenberg, Scott, and Welchans (2000) interviewed a large number
of layoff victims. Many of these individuals considered legal action following their
downsizing, and almost a quarter of the victims went so far as to speak to an attorney. The
40
single best predictor of willingness to take legal action was the justice of the treatment they
received at the time of their discharge. Among those who felt unjustly treated, Lind and his
colleagues found that a full 66% contemplated litigation. Among those who felt justly treated,
this dropped to just 16%. These are impressive findings.
Although managers are often coached by attorneys or HR representatives to avoid apologizing,
an apology can be seen as an admission of guilt? These results suggest that an apology may
help promote the feelings of interactional justice that actually reduce the risk of litigation.
Justice, it would seem, provides a useful way to survive a crisis with one's business reputation
intact. While we have so far discussed the victims of layoffs, workforce reductions also affect
survivors. Those left behind, though retaining their jobs, tend to suffer from "survivor guilt"
(Brockner & Greenberg, 1990). However, if organizations provide a good explanation as to
why the downsizing is necessary?an aspect of interactional justice? the remaining employees
respond much less negatively (Brockner, De Witt, Grover, & Reed, 1990).
Providing unemployment benefits is also advantageous, as one might expect. However, if these
benefits are lacking, an advance warning that a layoff is about to occur will blunt the negative
reactions that might otherwise transpire (Brockner et al., 1994, Studies 2 and 3). Performance
Appraisals: Keeping Score Fairly In order to assign rewards, identify candidates for promotion,
and develop human capital, most large organizations conduct performance evaluations. While
these appraisals are useful, concerns remain, and their implementation is often troubled. For
example, scholars have observed a phenomenon called the "vanishing performance appraisal"
(for a review, see Folger & Cropanzano, 1998). When surveyed, most managers reported
having provided performance reviews, while many of their subordinates reported never
receiving one. Other research suggests that evaluations are affected by political considerations
(Longenecker, Gioia, & Sims, 1987), cognitive processing limitations of the rater (DeNisi &
Williams, 1988), and the social context in which they are conducted (Levy & Williams, 2004).
These concerns tell us that the performance appraisal process often contains a good deal of
ambiguity as well as room for reasonable people to disagree. For this reason, it is helpful to
approach performance evaluations with an eye to their subjectivity. Historically, much of the
advice academics provided to practitioners encouraged them to think of the performance
review as a sort of test, whereby the central task is to assign a valid rating to a more-or-less
objective quantity. For example, raters have been advised to "become expert at applying
principles of test development" (Banks & Roberson, 1985, p. 129) and that "psychometric
issues surrounding performance measurement [are] more relevant than ever" (DeVries,
Morrison, Shullman, & Gerlach, 1981). This venerable, measurement-oriented understanding
of performance appraisal has been termed the "test metaphor" (Folger, Konovsky, &
Cropanzano, 1992).
More recent performance appraisal work has taken a broader perspective, emphasizing the
social setting (Levy & Williams, 2004) and input from multiple sources (Smither, London, &
Reilly, 2005). In this vein, Cawley, Keeping, and Levy (1998) meta-analyzed 27 field studies,
each of which examined employee participation in performance appraisal. They found that
when employees had a voice they were more satisfied, saw the process as more fair, and were
more motivated to do better. This is interesting, but probably not terribly surprising. The really
impressive finding was that these effects occurred even when participation could not affect the
41
rating. Simply being able to speak one's mind (what Cawley and coauthors termed "value-
expressive" participation) caused employees to be more favorable toward the performance
appraisal system. Notice how these findings are consistent with the fair process effect
mentioned earlier.
Research on organizational justice is providing a new paradigm for understanding performance
review. Consistent with Folger, Konovsky, and Cropanzano (1992), we call this the due process
approach to performance appraisal. Adopting a due process metaphor sensitizes one to the
distinct interpretations, potential conflicts of interest, and legitimate disagreement about facts.
The due process approach to performance review has three core elements: adequate notice, just
hearing, and judgment based on evidence. Adequate notice, as one might expect, involves
letting people know in advance when they will be appraised and on what criteria they will be
appraised. However, from a justice point of view, it goes beyond this. It is also useful to have
workers involved in devising performance standards and making these widely available. Of
course, it follows that feedback should be provided regularly. Just hearing means limiting the
feedback review to "admissible" evidence, such as worker performance rather than personal
attacks. It also means providing workers with a chance to provide their own interpretation of
events, including disagreeing with the supervisor where this is appropriate.
Judgment based on evidence means that the standards should be accurate, data should be
gathered, and decisions should be based on this formal process. Steps should be taken to
provide rater training, so as to improve accuracy and to keep the process free of political
influence. Taylor, Tracy, Renard, Harrison, and Carroll (1995) redesigned the performance
appraisal system of a large state agency so that it included these principles of due process. They
discovered that workers preferred the new system, finding it fairer and more effective.
Managers liked it as well, believing that it allowed them to be honest and feeling that it was
more effective for solving work problems. This occurred even though workers in the due
process system received lower ratings than did workers under the older approach. This is all to
the good, but there are risks involved.
Adequate notice, just hearing, and judgment based on evidence are complicated to administer.
A key problem is that they may raise expectations while simultaneously providing employees
with a set of tools for making their discontent felt. Consider the case of two companies studied
over six years by Mesch and Dalton (1992). Each firm was in the same region, and workers in
each were represented by the same union. In fact, grievances at both organizations were
assigned to the same union local. After 36 months, one of the firms decided to improve its
grievance process by adding a fact-finding intervention. Before the grievance process began,
both the union and management provided a "fact finder" to determine the merits of the case,
prevent concealment of information, and encourage negotiated settlements. This provided an
additional stage of process protection. The result? The number of grievances filed skyrocketed
at the firm with the new procedural safeguard, but stayed roughly constant at the other
organization. After about two years, the fact-finding intervention was abandoned, and the
grievance rate returned to normal. The new intervention seems to have raised expectations and
thereby encouraged workers to complain about real and imagined ill-treatment. In the long run
this was counterproductive. The implications of Mesch and Dalton's (1992) study need to be

42
appreciated. If procedures are not designed appropriately, they could create more problems
than they solve.

Concluding Thoughts
There are two sides to the justice coin. On the negative side, the absence of justice is likely to
provide problems for organizations. There is strong evidence that injustice can provoke
retaliation, lower performance, and harm morale (Cohen-Charash & Spector, 2001; Colquitt et
al., 2001; Viswesvaran & Ones, 2002). On the positive side, justice can do more than forestall
these unfortunate outcomes. Justice acts as a sort of buffer, allowing employees to maintain
respect and trust for an organization even when things do not go as they would have liked
(Brockner & Wiesenfeld, 1996). It is inevitable in life that things will not always go our way.
However, the negative effects of an unfortunate event are less severe if an organization is able
to maintain procedural and interactional justice (Goldman, 2003; Skarlicki & Folger, 1997).
Justice provides an excellent business opportunity, from reaping specific returns such as
stronger employee commitment to gaining an overall tough-to-copy competitive edge that
resides in a "culture of justice." In this paper we have examined justice from the perspective of
five managerial tasks: hiring, reward systems, conflict management, layoffs, and performance
appraisals. These tasks are diverse, but they all involve a degree of risk. Each has the potential
to designate some as "winners" and others as "losers." After all, there will always be people
who fail to get the job, receive a lower than expected performance appraisal, or are downsized
in the face of business exigencies. As a result, organizations hazard the ill will of employees
simply because they are making the sorts of decisions necessary to run their businesses.
Organizational justice allows managers to make these tough decisions more smoothly. Just play
certainly does not guarantee all parties what they want. However, it does hold out the possibility
that power will be used in accordance with normative principles that respect the dignity of all
involved. This is sound business advice. It is also the right thing to do

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 CHAPTER FIVE

CONTEMPORARY ISSUES IN BUSINESS ETHICS

This chapter treats three critical and important ethical issues which have attracted attention
globally. Specifically, this broad chapter will be divided into three specific chapters: whistle
blowing, conflict of interest and corruption.

WHISTLE-BLOWING

Introduction
Reporting wrongdoing although critical to organizational survival, increasingly people have
developed a negative attitude towards whistle blowing as a result of the dangers associated
with the act of whistle blowing especially to the whistle blower. This section addresses critical
issues on the concept of whistle blowing and its relevance in organizations.

Whistle-blowing Defined
The term whistle-blowing is derived from the act of a referee in a sport event where the referee
blows the whistle to stop the action, usually on account of an illegal play (Miceli & Near,
1992). The official name for whistle-blowing is ‘making a disclosure in the public interest”,
however it is much more commonly called ‘blowing the whistle’ or ‘whistle-blowing’. It means
that if you believe there is wrongdoing in your workplace (eg your employer is committing a
criminal offence) you can report this by following the correct processes, and your employment
rights are protected.
Whistle-blowing/blower was a word created in the 70s to specifically differentiate allegations
from somebody from inside the company as opposed to allegations of a wrong-doing by
someone from outside the company. Near and Miceli, (1985) define whistle-blowing as the
“disclosure by organisation members of illegal, immoral, or illegitimate practices under
the control of their employers, to a person or organisations that may be able to effect
action”.
Boatright (2000) has also defined whistle-blowing as the voluntary release of non-public
information, as a moral protest, by a member or former member of an organization
outside the normal channels of communication to an appropriate audience about illegal
and/or immoral conduct in the organization or conduct in the organization that is
opposed in some significant way to the public interest.

The agreed-upon definition of whistle-blowing according to Johnson (2003) has four

components:
1) A person acts with the intention of making information public;

44
 2) The information is transmitted to people outside the organisation who make it public
and a part of the public record;
3) The information has to do with possible or actual nontrivial wrong-doing in a company;
and
4) The individual exposing the organisation is not a journalist or ordinary citizen, but an
employee or former employee of the organisation.

Whistle-blowing has been recognized as a control mechanism to prevent unethical behavior,

and to protect the organization’s long-term welfare, and to ensure good corporate governance
(Eaton and Akers, 2007). In recent years, scholars’ interest in whistle-blowing within business
and public organizations has been heightened by widely publicized cases (e.g. Enron,
WorldCom, Tyco, Global Crossing, Adelphia, and even the International Olympic
Committee to name just a few of the most prominent (Calvert, 2002) and by increased
legal protection for whistle-blowers in numerous countries, such as the Protected
Disclosures Act of New Zealand, Whistle-blowing Policy of France, the Sarbanes-Oxley
Act of the USA, Public Interest Disclosure Act of the UK (Eaton and Akers, 2007) and
Ghana’s Whistle-blowers Act of 2008.
Perhaps the most infamous case is that of Enron. Sadly, Enron was regarded as one of the most
promising companies in USA before its collapse. It was even rated the most innovative large
company in America from 1996 to 2001 (Lainson, 2001). As of December 31, 2000, Enron’s
stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70 times
earnings and six times book value, an indication of the stock market’s high expectations about
its future prospects. Yet within a year, Enron’s image was in tatters and its stock price had
plummeted nearly to zero (Healy and Palepu, 2003). The recent convictions of Kenneth Lay
and Jeffery Skilling finally brought this sad chapter of business history to a close (Calkins,
2004).

Encouraging Internal Whistle-blowing in Organizations

When Time magazine editors named WorldCom's Cynthia Cooper and Enron's Sherron
Watkins two of their People of the Year for 2002, they were acknowledging the importance
of internal whistleblowers-employees who bring wrongdoing at their own organizations to the
attention of superiors. At WorldCom, Cooper pushed forward with an internal audit, alerting
the Board of Directors Auditing Committee to problems, despite being asked by the company's
CFO to postpone her investigation. According to Fortune magazine, "If Cooper had been a
good soldier, the whole incredible mess might have been concealed forever." At Enron,
accountant Sherron Watkins outlined the company's problems in a memo to then-CEO Kenneth
Lay.

But by the time Watkins and Cooper blew the whistle, much damage had already been done,
and the shareholders and employees were the ultimate losers. So the question is, How does an
organization create a culture that encourages employees to ask questions early-to point out
issues and show courage in confronting unethical or illegal practices? And then how can a
45
company ensure that timely action is taken? In other words, how does an organization
encourage internal whistle-blowing?

Attitudes Toward Whistle-blowing

These questions must be answered in the context of conflicting cultural norms, which make it
likely that whistleblowers will encounter hostility and alienation. As Terance Miethe explains
in his book, Whistle-blowing at Work, many people see the whistleblower as a "snitch," or "a
lowlife who betrays a sacred trust largely for personal gain."

This attitude was illustrated by an arbitrator in a 1972 case, who told the employee that you
cannot "bite the hand that feeds you and insist on staying on for the banquet." Among
others, Peter Drucker, the famed management guru and anti-whistleblower, viewed whistle-
blowing as "informing," illustrating yet another instance of the animus whistleblowers have to
expect from advocates of loyalty to the organization first.

On the flip side, whistleblowers such as Frank Serpico and Karen Silkwood are seen as
"saviours" who ultimately helped create important changes in organizations. This
approach to whistleblowers as guardians of public accountability is often taken by consumer
advocates such as Ralph Nader. Given this dichotomy, whistleblowers may well encounter
difficulties when they appeal internally or go public with information that may damage their
companies.

The objectives of an internal whistle-blowing program are

 To encourage employees to bring ethical and legal violations they are aware of to an
internal authority so that action can be taken immediately to resolve the problem

 To minimize the organization's exposure to the damage that can occur when employees
circumvent internal mechanisms

 To let employees know the organization is serious about adherence to codes of conduct

The barriers to a successful internal whistle-blowing program are

 A lack of trust in the internal system

 Unwillingness of employees to be "snitches"

 Misguided union solidarity

 Belief that management is not held to the same standard

46
  Fear of retaliation

 Fear of alienation from peers

Steps for Creating a Whistle-blowing Culture

Create a Policy
A policy about reporting illegal or unethical practices should include

 Formal mechanisms for reporting violations, such as hotlines and mailboxes

 Clear communications about the process of voicing concerns, such as a specific chain
of command, or the identification of a specific person in the organization, such as an
ombudsman or a human resources professional

 Clear communications about bans on retaliation

In addition, a clear connection should exist between an organization's code of ethics and
performance measures. For example, in the performance review process, employees can be
held accountable not only for meeting their goals and objectives but also for doing so in
accordance with the stated values or business standards of the company.

Get Endorsement From Top Management

Top management, starting with the CEO, should demonstrate a strong commitment to
encouraging whistle-blowing. This message must be communicated by line managers at all
levels, who are trained continuously in creating an open-door policy regarding employee
complaints.

Publicize the Organization's Commitment

To create a culture of openness and honesty, it is important that employees hear about the
policy regularly. Top management should make every effort to talk about the commitment to
ethical behavior in memos, newsletters, and speeches to company personnel. Publicly
acknowledging and rewarding employees who pinpoint ethical issues is one way to send the
message that management is serious about addressing issues before they become endemic.

Investigate and Follow Up

Managers should be required to investigate all allegations promptly and thoroughly, and report
the origins and the results of the investigation to a higher authority. For example, at IBM, a
long-standing open-door policy requires that any complaint received must be investigated
within a certain number of hours. Inaction is the best way to create cynicism about the
seriousness of an organization's ethics policy.

47
Assess the Organization's Internal Whistle-blowing System

Find out employees' opinions about the organization's culture vis-à-vis its commitment to ethics
and values. For example, Sears conducts an annual employee survey related to ethics. Some
questions are: Do you believe unethical issues are tolerated here? Do you know how to report
an ethical issue?

Conclusion

Given the prevalence of corporate misconduct in the recent past, whistle-blowing incidents
have been on the rise. A 2002 article in Business Week called 2002 the "Year of the
Whistleblower" and quoted Stephen Meagher, a former federal prosecutor who represents
whistleblowers, as saying that "the business of whistle-blowing is booming." This trend is
likely to be bolstered by the provisions of the Sarbanes-Oxley Act, which for the first time,
accords legal protections to whistleblowers in publicly traded companies. This means
organizations will have to institute rigorous policies to allow employees to bring unethical and
illegal practices to the forefront. Companies will have to train managers and executives on how
to encourage openness, not unlike the sexual harassment training of a decade ago. Putting
processes in place will not be quick, but it is certainly necessary given the increased public
scrutiny of corporate behavior.

Qualifying disclosures

To be protected as a whistleblower you need to make a ‘qualifying disclosure’ about

malpractice. This could be a disclosure about:

 criminal offences
 failure to comply with a legal obligation
 miscarriages of justice
 threats to an individual’s health and safety
 damage to the environment
 a deliberate attempt to cover up any of the above

There are some disclosures that can’t be qualifying disclosures. You won’t be protected for
whistle-blowing if:

 you break the law when making a disclosure (for example if you signed the Official
Secrets Act as part of your employment contract)
 the information is protected under legal professional privilege (eg if the information
was disclosed to you when someone wanted legal advice)

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Protected disclosures

For your disclosure to be protected by the law you should make it to the right person and in the
right way. You must:

 make the disclosure in good faith (which means with honest intent and without malice)
 reasonably believe that the information is substantially true
 reasonably believe you are making the disclosure to the right 'prescribed person'

If you make a qualifying disclosure in good faith to your employer, or through a process that
your employer has agreed, you are protected. You should check your employment contract to
see if your employer has set out a process for whistle-blowing.

If you feel unable to make a disclosure to your employer then there are other 'prescribed people'
you can make a disclosure to. If you are unsure, you should always get professional advice
before going ahead. Anything you say to a legal adviser in order to get advice is automatically
protected.

You could make a qualifying disclosure to the person responsible for the area of concern to
you. For example, you might raise concerns about health and safety with a health and safety
representative.

CONFLICT OF INTEREST

Introduction

Conflict of interest can occur on various levels from the individual to the organization, or
between the internal and the external community. In the end, executives or board members
engaging in a conflict of interest must have used their position to benefit themselves in some
way at the expense of the organization. According to Cooper (2006), conflict of interest legally
is defined as: situations where our personal interests are at odds with our obligations as a public
official or our professional values. There may be combinations of conflicting roles and tensions
between sources of authority, but more typically these occasions simply present us with an
opportunity to use our public office for the sake of our private gain of our friends or relatives
(p.129).

Conflicts of interest from the standpoint of ethics are broader than the legal definition because
the decision to engage in a conflict of interest involves loyalties, concerns and emotions in
relationships that collide with the organizational and public interests. The main ethical issue
involved in conflicts of interest is a breach of trust to the public. Whatever an executive or
board member engages in also affects the organizations image by the public.

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The term Conflict of Interest means any or other interest which conflicts with the service(s) an
individual provides because it could significantly impair the individual’s objectivity and create
an unfair competitive advantage for any person or organization. A conflict of interest is a
situation in which someone in a position of trust, such as a lawyer, insurance adjuster, a
politician, executive or director of a company or a medical research scientist or physician, has
competing professional or personal interests. Such competing interests can make it difficult to
fulfil his or her duties impartially.

Conflicts of interest occur when an officeholder puts his or her personal or financial interest
ahead of the public interest. In the simplest terms, the official reaps a monetary or other reward
from a decision made in his or her public capacity.

Boatright (1992) has stated that conflict of interest occurs when a personal interest interferes
with a person’s acting so as to promote the interest of another when the person has an obligation
to act in that other person’s interest’’. It could also be viewed as “a conflict between the public
duties and private interests of a public official, in which the public official has private-capacity
interests which could improperly influence the performance of their official duties and
responsibilities.”
According to Macdonald (2002), Conflict of interest is a situation in which a person has a
private or personal interest sufficient to appear to influence the objective exercise of his or her
official duties as, say a public official, or a professional. Conflict of interest could also be
viewed as a situation that has the potential to undermine the impartiality of a clash between the
person’s self-interest and professional or public interest.
From these definitions, there are three elements that can be examined further; the first element
is a private or personal interest. This interest is often a financial one but it could also be another
sort of interest, say, to provide a special advantage to a spouse or child. Taken by them, there
is nothing wrong with pursuing private or personal interest; for instance changing jobs but the
problem which comes with this private interest comes into conflict with the second element of
the definition (official duty), the duty you have because you have an office or act in an official
capacity. As a professional you take on certain official responsibility, by which you acquire
obligations to clients, employers, or others. These obligations are supposed to trump over
private or personal interest. The third element has to do with the fact that conflict of interest
interferes with professional responsibilities in a specific way, namely, interfering with
professional judgement. The major reason why clients and employers respect professionals is
that they expect the professionals to be objective and independent. Factors such as private and
personal interest that interfere or appear likely to interfere with objectivity are then a matter of
concern to the general public.
An apparent conflict of interest is one which a reasonable person would think that the
professional’s judgement is likely to be compromised. A potential conflict of interest involves
a situation that may develop into an actual conflict of interest.
There are various ways that conflicts of interest can occur that are not illegal but may be an
ethical violation of the organization. Ritvo, Ohlsen and Holland (2004) emphasized the
difficulty for people in authoritative positions to live active and ethical lives while facing

50
challenging decisions. Often the person’s ethical obligations to fulfil job commitments can
interfere with the person spending time with the family or others. For example, how could an
executive inform a higher-authority executive that a daughter’s piano recital comes before a
critical meeting with the executive board members? Morrison (2006) mentioned other types of
ethical conflicts of interest. One is when an individual’s personal behaviour conflicts with the
organization’s ethics, such as over-indulgence of alcohol or a public use of other drugs.
Because patients safety and competent care are critical to the viability of a health care
organization, personal behaviour outside the organization is extremely important, as is personal
behaviour inside the organization. Nurses, particular, are open to scrutiny by the public and by
hospital officials because of their nursing license and direct care patients.

CATEGORIES OF CONFLICTS OF INTEREST

The following are categories of conflicts of interest identified by Kernaghan and Langford
(1990) in their book “The Responsible Public Servant”;
1. Self-dealing: This occurs where one works with the government and uses one’s
official position to secure a contract for a private consulting company he/she owns.
Or using your government position to get a summer job for your daughter.
2. Accepting benefits: Bribery is one example, and gifts are another.
3. Influence peddling: Here, the professional solicits benefits in exchange for using
his/her influence to unfairly advance the interest of a particular party.
4. Using your employer’s property for private advantage: This could be as blatant
as stealing office supplies for home use. Or it might be a bit more subtle, say, using
software which is licensed to your employer for your private consulting work of
your own without permission.
5. Using confidential information for personal use: Unauthorized distribution of
confidential information, for personal advantage. While working for a private
client, you learn that the client is planning to buy land in your region. You quickly
rush out buy the land in your wife’s name.
6. Outside employment or moonlighting: An example would be setting up a
business on the side that is in direct competition with your employer. Another case
would be taken on so many outside clients that you don’t have the time and energy
to devote to your regular employer. In combination with influence peddling below,
it might be that a professional employed in the public service sells private consulting
services to an individual with the insurance that they will secure benefits from
government; if you use my company, I am sure that you will pass the governmental
review;
7. Post-employment: Here a dicey situation can be one in which a person who resigns
from a public or private employment and goes into business in the same area. For
example, a former public servant sets up a practice lobbying the former department
in which he/she was employed.

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DEALING WITH CONFLICT OF INTEREST
1. Serving the public interest: Public officials should make decisions and provide advice
without regard for personal gain. The decision maker’s religious, professional, party-
political, ethnic, family, or other personal preferences should not affect the integrity of
official decision making. At the same time, public officials should dispose of, or restrict
the operation of, private financial interests, personal relationships or affiliations that
could compromise official decisions in which they are involved. Where this is not
feasible – an official can hardly be expected to abandon her relationship with her
husband or children in the interests of her job – a public official should abstain from
involvement in official decisions that could be compromised by private interests.
Public officials should also avoid taking improper advantage in their private lives from
“inside information” not available to the public that is obtained in the course of official
duties. So public officials should not engage in a private financial transaction which
involves using confidential information obtained at work. In addition, public officials must
not misuse their position and government resources for private gain, such as awarding a
contract to a firm in the hope of obtaining a job with that firm on leaving public office.
2. Supporting transparency and scrutiny: Public officials and public organisations are
expected to act in a way that will bear the closest public scrutiny. Public officials should
disclose any private interests and affiliations that could compromise the disinterested
performance of public duties when taking up office and afterwards if circumstances
change, to enable adequate control and management of the situation.
Public organisations and officials should also ensure consistency and openness in
resolving or managing conflict-of-interest situations, for example by providing up-to-date
information about the organisation’s policy, rules and administrative procedures regarding
conflict of interest, or by encouraging discussion on how specific situations have been
handled in the past and are expected to be handled in the future. Organisations should also
promote scrutiny of their management of such situations, perhaps by involving employees
in reviews of existing conflict-of-interest policy or consulting them on future preventive
measures.
3. Promoting individual responsibility and personal example: Public officials,
particularly public office holders and senior managers, should act at all times in a
manner that demonstrates integrity and thus serves as an example to other officials and
the public. When dealing with individual cases, senior officials and managers should
balance the interests of the organisation, the individual and the public. Public officials
should also accept responsibility for arranging their private affairs so as to prevent
conflicts of interest and for identifying and resolving conflicts in favour of the public
interest when a conflict does arise. So an official could sell a relevant financial interest,
or declare an interest in a particular issue and withdraw from the decision-making
process.
4. Creating an organisational culture: The Guidelines also call on public organisations
to create an organisational culture that does not tolerate conflict of interest. This can be
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 done in a number of ways, such as raising awareness by publishing the conflict-of-
interest policy, giving regular reminders, developing learning tools to help employees
apply and integrate the policy and by providing concrete advice when the need arises.
Organisational practices should encourage public officials to disclose and discuss real,
apparent or potential conflict-of-interest cases, and provide reasonable measures to
protect them from retaliation. Public organisations should also create and sustain a
culture of open communication and dialogue to promote integrity, while providing
guidance and training to promote understanding.

METHODS TO REDUCE CONFLICTS OF INTERESTS

1. Avoidance: The best way to handle conflict of interest is to avoid them entirely. This
may mean pulling oneself from all identifiable potential conflict of interest situations.
2. Disclosure: As in Ghana where politicians assuming public office have to make
declarations of Assets and interests to the Auditor General and documents can be
assessed by state bodies. In any given situation, office holders have a duty to disclose
any interest to all parties.
3. Excuse: Those with the conflict of interest are expected to excuse themselves from (e.g,
abstain from) decisions where conflict exists. The imperative for excuse varies
depending upon the circumstance and profession, either as common sense ethics,
codified ethics, or by statute. For example, if the governing board of a government
agency is considering hiring a consulting firm for some task and one firm being
considered has, as a partner a close relative of one of the board’s members, then that
board member should not vote on which firm is to be selected. In fact, to minimize any
conflict, the board member should not participate in any of the decisions, including
discussions.

Judges are supposed to excuse themselves from cases when personal conflicts or
interest may arise. For example if a judge has participated in a case previously as some
other judicial role he or she is not allowed to try that case. Refusals is also expected
when one of the lawyers in a case might be a close personal friend, or when the outcome
of the case might affect the judge directly, such as whether a car maker is obliged to
recall a model that a judge drives. This is required by law under continental civil court
systems and by the Rome statute, organic law of the international criminal court.

4. Third party evaluations: Third- party evaluation can be used to mitigate conflict of
interest as proof that transactions were; above board’ or fair (arms-length). For
example, a corporation that leases an office building that is owned by the CEO might
get an independent evaluation showing what the market rate is for such leases in the
locale, to address the conflict of interest that exist between the fiduciary duty of the
CEO (to the stakeholders) and the personal interest of that CEO (to maximize the
income that the CEO gets from that office building).

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Case 1:

Betty, the chief nursing officer, had to make a decision about buying 120 new hospital beds
for patient rooms. After she interviewed nurse managers at the units where the beds were
going to be placed, Betty compiled her findings and decided to contact a well-known
equipment company to obtain prices and contracts. The equipment company’s executive sales
person, Jim, discussed options at length with her and invited her and her significant other to
an upcoming all-expense-paid lavish retreat at a five-star hotel in Hawaii to see
demonstrations of the beds and to hear a comprehensive sales pitch. Betty thought to herself,
“We badly need some relaxation and stress relief. Hawaii would be so much fun. Would it be
wrong for us to go?

1. If you were Betty, what should you do? Give your rationale. Justify your answer with
an ethical framework – a theory, approach, or a principle

2. What ethical principles are at stake? What breaches?

3. Do you consider this situation a conflict of interest? Why or why not? Give your
rationale

4. How would Betty handle this case if she believed she needed to seek advice from
someone in a higher authority? With whom would she discuss this issue?

5. What policies should be in place regarding a scenario such as this one?

Case 2:

Savannah, a registered nurse attended a party the night before a schedule 12-hour work day,
overindulged in cocktails, got to bed around 3am, and came to work the next morning at
6:45am with a hangover and alcohol still on her breath. This situation placed Savannah in
ethical violation of the organization’s values and the Code of Ethics for Nurses, as well as a
legal violation of the state board of nursing, because if alcohol is smelled on her breath, it is
still in the blood stream, which could alter her judgment. Savannah’s altered judgment could
result in unsafe patient care and treatments.

Questions

1. Discuss the ethical implications of Savannah’s partying before work. Do you believe
that Savannah engaged in an ethical conflict of interest? Why or why not? Please
explain your rationale.

2. What ethical violation existed in Savannah’s case regarding her personal behaviour,
the hospital’s ethics and values, patient safety, and the state board of nursing?.

3. What other options could Savannah have considered other than going to work in an
altered state of mind? Make a list of the pros and cons of at least two other
alternatives Savannah could have chosen.
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 4. Describe and justify how you would have handled this situation had you been
Savannah. Justify your strategies by using an ethical framework – a theory, approach,
or principle.

5. What are the risks of Savannah attending work after drinking so much at the party?
Explain your answer

6. Do you believe that the nursing supervisor should take action against Savannah? Why
or why not? If you believe that the supervisor should take action against Savannah,
describe the specific options for disciplinary action based on your general knowledge
of institutional and state board of nursing disciplinary protocol.

CORRUPTION

Introduction

Corruption remains a threat to countries and in fact, corruption has been reported to be the bane
of Africa’s development. Governments after governments have tried to fight this cancer but the
situation seems to be increasing instead. For example Corruption-free society is another value
enshrined in the 1992 constitution. President Kuffour on assumption of office declared Zero
tolerance for corruption. What is corruption and how is it being managed in Ghana?

It is easy to talk about corruption, but like other complex social phenomena, it is difficult to
define corruption in concise and concrete terms. Not surprisingly, there is no generally accepted
definition on what constitute corruption. The term “corruption” comes from the Latin word
which means “moral decay, wicked behavior, putridity or rottenness”.

According to M. Khan, (1996), “corruption could be defined as behavior that deviates

from the formal rules of conduct governing the actions of someone in a position of public
authority because of private regarding motives such as wealth, power, or status”.

The World Bank and Transparency International define corruption as “the abuse of power for
private benefits”.

Brooks (1974) defined corruption as the internal mis-performance or neglect of a

recognized duty, or unwarranted exercise of power, with the motive of gaining some
advantage more or less directly’.

 Senturia (1931) sees it as the misuse or abuse of public power for private gains.
 Alatas (1990) characterizes corruption as the abuse of trust for the sake of private
benefits.
R. Kofi Nyantakyi sees corruption as “an act or a conduct of dishonesty committed by
way of omission or commission which is intended to implicitly or explicitly influence,
55
deviate from and alter the just behaviour and accepted societal propriety in order to
satisfy one’s selfish end or parochial interest”.

From the above, corruption could be thus, said to be any wrongdoing on the part of an
authority or powerful party through means that are illegitimate, immoral, or
incompatible with ethical standards in order to satisfy his or her personal gains. The
practice of corruption among other things tarnishes the image of the organization, and makes
stakeholders lose trust and confidence in such an institution in which it is practiced.

These definitions are fairly embracive of the issues subsumed under corruption but do not
sufficiently bring out what Gire (2001) calls the prioritization process by the individual’- that
is putting self above the collective.

Therefore in this lecture corruption is defined as; the sacrifice of statesmanship on the altar
of partisanship. It is seen as an act that is crafted and undertaken with the deliberate
intent of deriving or extracting personal reward (Werlin, 1994, Dey 1989). Such behavior
may entail theft, the embezzlement of funds, financial mismanagement, and
misappropriation of state property, nepotism and granting of favours to personal
acquaintances, and the abuse of public authority to exact money or other privileges.

The term corruption is used as a shorthand reference for large range illicit or illegal activities.
Although there is no universal or comprehensive definition of corruption, most definition
shares a common emphasis upon the abuse of public power or position for personal advantage.

Klitgaard et al in corrupt cities have developed a formula on corruption as; C= M+D-A

where C is corruption, M is monopoly power, D is official discretion and A is
accountability.

Owusu- Frempong (2003) has argued that this formula should attract transparency to make it
C=M+D-A-T.

According to the Anin report, Bribery and corruption involve both the giving and the receiving
of a gift, or attempts to extort a gift- a valuable consideration whether in cash or kind-with the
object of influencing a person in a position of trust to act in a way favourable to the interest of
the giver’. Justice Anin’s commission of Inquiry into bribery and corruption identified one
hundred and sixty-two separate activities where corruption was practiced. Justices Anin’s
report enumerated among others, the following corrupt activities; Priests extracted gifts from
bereaved families of non-church goers in exchange for burying the dead. Churches
encourage the possession of material things instead of fighting corruption. Their demand
for money has become insatiable. Rich people are given prominent seats and recognition
at churches and functions irrespective of how they get their money. Devout members of
no substance are belittled. The churches condemnation of corruption, fraud and greed,
and not dishonesty is at best accommodating. The rich are idolized and worshipped and
the poor are tempted to emulate their nefarious activities, thus perpetuating corruption
in society. Other corrupt practices include employment and posting of teachers,

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certificate of contract work, issue of import and export permits, waiving or exemption of
custom duties by custom officers, collusion of police with offenders, improper closure of
police dockets, allocation of market stalls, granting of privileges to prisoners, court
judgments by magistrates and judges, staff appointments, promotion and transfers and
even mortuary attendants demand payment before releasing dead bodies to relatives,
match fixing and others. The list is shockingly endless.

In a paper delivered at a roundtable discussion organized by the Institute of Economic Affairs,

Dr. Ken Attafua among others had this to say “the cost of corruption is enormous, covering the
loss of development funds, retardation of economic growth, flight of capital, and inflation of
administrative costs. Corruption also frequently results in the loss of legitimacy and respect for
legally constituted authority by among other things, undermining the integrity of the socio-
legal foundations of that authority. It debases the moral fibber of a society by nibbling away at
the core values that bond the society together. In this sense, corruption is decidedly
dysfunctional to the maintenance of a just social order”

FORMS OF CORRUPTION

Corruption can be categorized in various ways. Ofori-Kwafo (2003) has put corruption into
the following categories;

 Petty Corruption: This involves relatively minor amounts of money or gifts changing
hands. One of the parties could be a relatively minor official in an organization where
the bribery is taking place. A key characteristic of petty corruption is that it takes place
many times (high frequency). Included in this type are bribes to traffic police.

 Grand Corruption: Corruption involving substantial amounts of money engaged in

by businessmen and government officials of senior rank and the figures involved are
significant. Kickbacks to government officials for public works contracts fall under
this category.

 Looting (Lootocracy): This is the type of corruption that involves the illegal transfer
of money or goods from one person or destination to another. It usually involves
scams/scandals that are so huge that when they have been successfully concluded; they
have macroeconomic implication fairly quickly such as banks collapsing, inflation
rising and declining exchange rate. Usually under the direction of powerful political
actors and involves paying for big service contracts that are never delivered. Funds are
usually used to fund elections or private militias.

The difference between grand corruption and looting is that in grand corruption, the kick back
is usually a fraction of the project but the project is completed though with bad quality. In
looting, the kick back is the whole amount (100%) and the project is never completed and
sometimes never started.

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  Systemic/ Routine Corruption: This type of corruption occurs where bribery is
regularly and frequently experienced. It takes place where wrong doing has become
the norm and common where officers that have regulatory services such as licenses,
permits, immigration are issued.

 Political/ Bureaucratic Corruption: This type involves violation of election laws,

campaign finance regulations and conflicts of interest rules of parliamentarians. Also
found where power is highly centralized in a patronage-based political system and
friends are rewarded. Funding comes from forced or voluntary business contributions
or diverting government revenue or donor aid.

TYPES OF CORRUPTION

The issues or factors included in this definition are so broad to warrant a further refining for
the nature and scope of this article. In an elaborate analysis, Alatas (1990) gave a typology of
corruption; this provided seven distinct types or categories of corruption;

1. AUTOGENIC; Autogenic corruption is self-generating and typically involves only

the perpetrator. A good example would be what happens in the case of insider trading.
A person learns some vital information that may influence stocks in a company and
either quickly buys or gets rid of large amounts of stocks before the consequences
arising from this information come to pass.
2. DEFENSIVE; Defensive corruption involves situations where a person needing a
critical service is compelled to bribe in order to prevent unpleasant consequences
inflicted on his interests. For example a person wanting to travel to Japan on a business
trip within a certain time frame needs a passport in order to undertake the journey but
is made to pay bribe or (unofficial money) or forfeits the trip. This person is in self-
defence.
3. EXTORTIVE; Extortive corruption is the behavior of a person demanding personal
compensation in exchange for services.
4. INVESTIVE: Investive corruption entails the offer of goods or services without a
direct link to any particular favour at the present but with the anticipation of future
situations when the favour may be required.
5. NEPOTISTIC; Nepotistic corruption refers to the preferential treatment of, or
unjustified appointment of friends or relations to public office, in violation of the
accepted guidelines.
6. SUPPORTIVE: The supportive type usually does not involve money or immediate
gains, but involves actions taken to protect or strengthen the exciting corruption. For
example a corrupt official may try to prevent the election or appointment of an honest
District Chief Executive, Mayor, local council member or the regime for the fear that
the individual or group or person or government might be probed by their successor(s)
and
7. TRANSACTIVE: Finally, transactive corruption refers to situation where the two
parties are mutual and willing participants in the corrupt practice to the advantage of
58
 both parties. For example a corrupt business may willingly bribe a corrupt government
official in order to win a tender for a certain contract.

CAUSES OF CORRUPTION

Institutionalized patterns, attitudes and behaviors

 Parochialism
 Kinship, tradition, gift- giving
 Patron- client network

Market corruption; systematic corruption

 Scarcity of employment opportunities

 Inefficient regulatory regime
 Excessive bureaucratic structures/ bottlenecks
 Green and unnecessary materialism
 Politicization of the bureaucracy
CONTROL / REMEDIALS SRATEGIES

 Socialization agencies
 Family
 Peer group, schools
 Mass media
 Establish anti- institutions, CHRAJ, SFO/EOCO, Office of Accountability
 Public education- e.g., Vice President campaign against indiscipline
 Churches / religious groups
 Political Parties
 Stiffer punishment/ sanctions
 Prosecution/ Public Display of officers etc.

EFFECT OF CORRUPTION ON NATIONAL DEVELOPMENT

Corruption involves the improper and unlawful behavior of public- service officials, both
politicians and civil servants, whose positions create opportunities for the diversion of money
and assets from government to them and their accomplices.

This situation creates some negative effects on the nation including;

1. Corruption leads to low productivity and it’s a potential source of poverty. It is a

disincentive to productive work if one can benefits without much work
2. Corruption constrains investment and retards growth. Investors are asked for
bribes before setting up enterprises and become a tax to them and discourage
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 investment. Without investment, economic growth is regarded as jobs will not be
created social amenities will not develop.
3. Corruption leads to low quality social infrastructure; this affects movement of
goods and services leading to shortages.
4. Corruption is a disincentive to domestic savings; where banks collapse due to non-
performing loans and people lose confidence in banks and hoard their money making
it unavailable for investors to borrow for productive use.
5. Corruption, if not checked, leads to impunity; a culture develops where every one
flows with the system.

CHAPTER SIX

CORPORATE SOCIAL RESPONSIBILITY

The term corporate social responsibility is now a celebrated concept in business circles as most
organizations now have incorporated social responsibility into their business operations. In
fact, businesses now use CSR as a strategy to appeal to the conscience of customers and society
regarding how ethical they are with respect to their responsibility to society.

Introduction
The development of a country is not solely the responsibility of the government; every citizen
should take part in achieving social welfare and improving the quality of life of the community.
The business world’s role is to increase healthy economic growth, taking environmental issues
into account. Nowadays, the business world does not focus only on the financial aspect (single
bottom line); it considers financial, social and environmental aspects (triple bottom line).
The definitions of CSR are many and may refer to ethical behaviour, sustainable
development, the environment, and to philanthropic ideas. It is important that organizations
are committed to fulfilling expectations and moral obligations at the level of society. This
means that right conduct takes into account the welfare of the larger society.
And more recently, McWilliams and Siegel (2001:117) define it as “… actions that appear to
further some social good, beyond the interests of the firm and that which is required by law”.
While the CSR construct is a new coinage, it is not a new practice. It could be traced back to
such examples as the Quakers in 17th and 18th centuries whose business philosophy was not
primarily driven by profit maximisation but by the need to add value to the society at large –
business was framed as part of the society and not separate from it. The resurgent interest in
the practice provides a fertile ground for different discourses and actors, which lends it to
multiple and contested constructions (Moon 2002). Corporations around the world are
struggling with a new role, which is to meet the needs of the present generation without
compromising the ability of the next generations to meet their own needs. Organizations are
being called upon to take responsibility for the ways their operations impact societies and the
60
natural environment. They are also being asked to apply sustainability principles to the ways
in which they conduct their business.
Robbins and Decenzo (2001) see social responsibility as the obligation of a firm, beyond that
required by law or economics, to pursue long-term goals that are good for society.
Hopkins (2003), state that CSR is the ethical, responsible and integrated business
implementation applied to all operations. Lesmana, (2007) opines that corporate social
responsibility (CSR) is one of the roles performed by the business world and it is aimed at
encouraging business entities to run their activities ethically, minimizing bad effects on
communities and the environment so that, ultimately, they can continue to carry on
gaining economic benefit as their objective.

Presently, the ideal definition of CSR is given by The World Business Council for Sustainable
Development (2001) and cited in Jamali (2006) as a business commitment that contributes
to sustainable economic development through team work with employees and their
representatives, their families, and local and public communities, to improve the quality
of life by means of beneficial ways both for the business itself and for development.

Corporate Social Responsibility (CSR) is also known as Corporate Citizenship, Global

Citizenship and Corporate Accountability. While some may argue over the distinctions
among these terms, at the core they all point towards the same fundamental principle: that a
company is responsible for providing more benefits than just profits for shareholders. It
has a role to play in treating its employees well, preserving the environment, developing
a sound corporate governance, supporting philanthropy, fostering human rights,
respecting cultural differences and helping to promote fair trade, among others. All are
meant to have a positive impact on the communities, cultures, societies and environments in
which companies operate.
According to the Commission of the European Communities (2001) and cited in Jones et al.,
2006), the activities of CSR have been categorized in two dimensional approaches, i.e. internal
and external and have to be implemented in three aspects, i.e. economic, social and
environmental (Jamali, 2006). The internal dimensions include human resource
development management, health and safety at work, adaptation to changes, and
environmental and natural resources effect management. The external dimension consists
of a wider area, including investors, the local community, business partners, suppliers and
consumers, human rights, and global environmental care.
Sustainability refers to an organization’s activities, typically considered voluntary, that
demonstrate the inclusion of social and environmental concerns in business operations and in
interactions with stakeholders (van Marrewijk & Verre, 2003).
It is no longer acceptable for a corporation to experience economic prosperity in isolation from
those agents impacted by its actions. A firm must now focus its attention on both increasing its
bottom line and being a good corporate citizen. Keeping abreast of global trends and remaining
committed to financial obligations to deliver both private and public benefits have forced
organizations to reshape their frameworks, rules, and business models. To understand and
enhance current efforts, the most socially responsible organizations continue to revise their
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short- and long-term agendas, to stay ahead of rapidly changing challenges. Corporate
responsibility or sustainability is therefore a prominent feature of the business and society
literature, addressing topics of business ethics, corporate social performance, global corporate
citizenship, and stakeholder management. Management education can be an important source
of new ideas about shifting toward an integrated rather than fractured knowledge economy, but
this means also that the role and meaning of socially responsible leadership needs to be updated.
Much further research is needed to create a clearer understanding of what is required, both in
leadership itself and in the field of leadership development.

Responsibilities of a Corporate Body

Carroll, (2000) states that organizations are expected to practice “social responsibility” or be a
good “corporate citizen”. Carroll (1979) argues that corporations should not only be judged on
their economic success but also on non-economic criteria. To fulfill the good corporate citizen
role, a corporation should fulfill the following responsibilities (Carroll, 2000):
1. Economic: Earn a fair return on capital to satisfy the shareholders, deliver value for
money products to satisfy customers, create new jobs and new wealth for the business,
and promote innovation.
2. Legal: Comply with the law.
3. Ethical: Be moral, fair, just, respect people’s rights, avoid harm or social injury and
prevent harm caused by others.
4. Philanthropic: Perform beneficial activities for society.

Lantos (2001) cited in Wan-Jan (2006) on the other hand put CSR into three categories:
1) Ethical CSR: He sees ethical CSR as all expectations of the company to be responsible
morally in preventing loss and damage as a result of its activities. This CSR is expected
from all companies and stands as the minimum requirement fulfilled by the company.
2) Altruistic CSR: Defined as a caring form that is forfeited by the company.
3) Strategic CSR: This means corporate care activities implemented to complete the
company’s business strategic objective.

Dimensions of CSR
The Global Reporting Initiative (2001) stated the key dimensions of CSR or triple bottom line.
The first is economy. In this dimension, CSR should delve into more than traditional financial
accountancy by looking into new measurements of wealth, like HRD and the intellectual capital
developed by the company.
Examples would be reducing business costs through appropriate business integrity policy, and
increasing employees’ productivity by conducting research and HRD development and also
employee training.
The second dimension is the environment. This means that CSR should study the implications
of resource and energy usage, and the company’s effect on the integrity of the environment.
Examples of this would include environmental policy and audit, and environmental
responsibility management.

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The third dimension is social. In this dimension CSR should maximize the positive influence
of the company’s operations to a wider community. Examples of this would include community
health problems, social justice, and inter- and intra-organizational justice.
In addition to the above three dimensions, scholars have made references to two (2) other
dimensions of CSR which are sustainable development and reputation:

Sustainable development: The CSR program implemented by a company should be a

sustainable development program, since it will give a better positive outcome and benefits to
the company and its stakeholders. Furthermore, a sustainable CSR program will help to
establish a prosperous and independent community (Lesmana, 2007). According to the World
Business Council on Sustainable Development (2001), a sustainable development is a
development that fulfills current needs without sacrificing the ability of future
generations in fulfilling theirs (Porter and Kramer, 2006). The International Institute for
Sustainable Development and Deloitte & Touche also defined sustainable development for
business entities as a process of adopting business strategies and activities to fulfill the present
company’s needs and the needs of stakeholders as well as protecting, supporting and increasing
the human and natural resources needed in the future (Labuschagne and Brent, 2005; cited in
Malovics et al., 2007). A sustainable development does not focus on environmental issues only.
Its policy covers three public areas: Economy, Social issues; and the environment (Lesmana,
2007).

Reputation: The social responsibility of a company is recognized as an aspect, an appeal and

an activity that influences its reputation (Zyglidopoulos, 2001; Fombrun and Shanley, 1990;
Carroll, 1979; all cited in Siltaoja, 2006). Deephouse (2000) and Fombrun (1996, 1998; all
cited in Siltaoja, 2006) revealed that reputation is often defined as the most important
competitive excellence a company can have. For Brown and Logsdon (1999; cited in Siltaoja,
2006), reputation is a long-term combination of an outsider’s view of the organization,
how well the organization executes its commitments and fulfills stakeholders’
expectation, and how effective the organization’s performance is according to its soc-
political environment. Accountability and sustainability are certainly used in assessing the
company’s reputation. For business world and community, the concepts of accountability and
sustainability can be developed consistently to the power and capacity of the company, to act
according to the company’s and the worlds interest together (Freeman, 2006).
Lewis (2003) has described six criteria for a company’s reputation:
 Product/service quality;
 Financial performance;
 Dealing with employees;
 Environmental responsibility;
 Social responsibility; and
 Leadership.

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Porter and Kramer (2006), in the context of a sustainable CSR programs implemented by a
company, suggested that CSR is more than a cost, an obstacle or charity – CSR can be an
opportunity, an innovation and a competitive excellence. Furthermore, Porter and Kramer
(2006) revealed that strategically, CSR can be the source of excellent social advancement,
similar to a business whose application of resources, professionals and knowledge is suitable
to be considered in beneficial activities for the community. Companies should now invest in
sustainable CSR programs as a part of their business strategy (Porter, 2003) and implement
them accordingly (Lewis, 2003) to achieve further excellence. The key factor that initiates CSR
is stakeholders’ expectations that an investment decision should generate not only financial
profit, but should also take into account the social and environmental aspect so that community
welfare can be improved (Robin, 2005; Commission of the European Communities, 2001; both
cited in Malovics et al., 2007).

CSR and Accountability

Accountability is one of the processes whereby a leader, company, or organization seeks to
ensure integrity. In a global stakeholder society, accountability is among the key challenges of
organizations. Responsible leaders are concerned with reconciling and aligning the demands,
needs, interests, and values of employees, customers, suppliers, communities, shareholders,
nongovernmental organizations (NGOs), the environment, and society at large. A company’s
track record in terms of CSR accounting will be effective when appropriate CSR measures are
included in its internal as well as its supply-chain activities. Furthermore, the literature reflects
a growing need for dissemination of good practice in CSR accountability and a need for more
pressure to be exerted on NGOs to prove themselves as ethical, transparent, and accountable
as those they seek to influence (Frame, 2005). A relevant point raised in some literature has to
do with the effectiveness of strategies undertaken by communities to demand corporate
accountability (Garvy & Newell, 2005). This literature argues that the success of community-
based strategies for corporate accountability is conditional upon the right combination of state,
civil, societal, and corporate factors.
Frynas (2005) makes the point that accountability is more than making false promises. In the
oil, gas, and mining sectors, despite the promise of CSR and the spending of over US $500
million in 2001 alone on a long list of community development programs and other CSR
initiatives, the effectiveness of the initiatives has been increasingly questioned. Frynas points
out that there is mounting evidence of a gap between the stated intentions of business leaders
and their actual behavior and impact in the real world of financial funding. CSR requires
accountability by all leaders, individuals, organizations, stakeholders, customers, and
community members, and yet accountability is complex. The factors which influence the
effectiveness of corporate accountability are multiple and tightly interconnected. This
interconnectedness and its relationship to accountability are represented in the work of Dolan
(2004), which uses the example of his own company to illustrate the idea of considering a
business as an interconnected web of relationships, with the consequences of every action the
company takes having an impact on both the world and the company’s long-term business.

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Theories of Corporate Social Responsibility (CSR)
The CSR is well understood when viewed from a theoretical perspective. This section discusses
relevant theories of CSR.
Stakeholder theories
The stakeholder theory of the firm is used as a basis to analyse those groups to whom the firm
should be responsible. As described by Freeman (1984), the firm can be described as a series
of connections of stakeholders that the managers of the firm attempt to manage. Freeman's
classic definition of a stakeholder is ``any group or individual who can affect or is affected
by the achievement of the organization's objectives'' (Freeman, 1984). Stakeholders are
typically analysed into primary and secondary stakeholders. Clarkson (1995) defines a primary
stakeholder group as ``one without whose continuing participation the corporation cannot
survive as a going concern'' with the primary group including ``shareholders and investors,
employees, customers and suppliers, together with what is defined as the public stakeholder
group: the governments and communities that provide infrastructures and markets, whose laws
and regulations must be obeyed, and to whom taxes and obligations may be due''. The
secondary groups are defined as ``those who influence or affect, or are influenced or
affected by the corporation, but they are not engaged in transactions with the corporation
and are not essential for its survival''.

In terms of the issue of social responsibility, the central issue is whether stakeholder analysis
is part of the motivation for business to be responsible and, if so, to which stakeholders. Hamil
(1999), adopting Donaldson and Preston's (1995) typology, finds that corporate giving is
nearly always instrumental. An important question that has been addressed is to which groups
do managers pay attention? Mitchell et al. (1997) develop a model of stakeholder identification
and salience based on stakeholders possessing one or more of the attributes of power,
legitimacy and urgency. Agle et al. (1999) confirm that the three attributes do lead to salience.
Thus, we might anticipate that firms would pay most attention to those legitimate stakeholder
groups who have power and urgency. In practice this might mean that firms with problems
over employee retention would attend to employee issues and those in consumer markets would
have regard to matters that affect reputation.
Stakeholder groups may also become more or less urgent; so environmental groups and issues
became more urgent to oil firms following the Exxon Valdez oil spill (Patten, 1992). We note
from the current commercial approaches to CSR that stakeholder analysis is important, but that
the rationale remains largely instrumental (WBCSD, 1999; Business Impact, 2000). However,
there are elements that are also normative. For example, Business Impact begins by advocating
that CSR should be based against set purposes and values, nevertheless such purpose and values
are also linked to ``contributing to [the firm's] reputation and success'' (Business Impact, 2000).

Social Contract Theory

Gray et al. (1996) describe society as ``a series of social contracts between members of
society and society itself''. In the context of CSR, an alternative possibility is not that business
might act in a responsible manner because it is in its commercial interest, but because it is part
of how society implicitly expects business to operate. Donaldson and Dunfee (1999) develop
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integrated social contracts theory as a way for managers to take decisions in an ethical context.
They differentiate between macro-social contracts and micro-social contracts. Thus a
macro-social contract in the context of communities, for example, would be an expectation that
business provide some support to its local community and the specific form of involvement
would be the micro-social contract. Hence companies who adopt a view of social contracts
would describe their involvement as part of ``societal expectation'', however, whilst this could
explain the initial motivation, it might not explain the totality of their involvement.

Legitimacy Theory
Suchman (1995) defines legitimacy as ``a generalized perception or assumption that the
actions of an entity are desirable, proper, or appropriate within some socially constructed
system of norms, values, beliefs and definitions''. Bringing together prior literature on
legitimacy management including the strategic tradition of resource dependence theory (Pfeffer
and Salancik, 1978) and the institutional traditions (DiMaggio and Powell, 1983), he identifies
three types of organisational legitimacy: pragmatic, moral and cognitive.
He further identifies three key challenges of legitimacy management: gaining, maintaining and
repairing legitimacy. Suchman points out that ``legitimacy management rests heavily on
communication''. Therefore in any attempt to involve legitimacy theory, there is a need to
examine some forms of corporate communications.
Thus there is a need to examine any particular corporate behaviour within its context and in
particular to look for alternative motivations. Thus legitimacy might be seen as a key reason
for undertaking corporate social behaviour and also then using that activity as a form of
publicity or influence (Lindblom cited in Gray et al., 1996 and in Clarke, 1998). A converse
view to this, i.e. not that business uses its power to legitimate its activity but, rather that
society grants power to business which it expects it to use responsibly, is set out by Davis
(cited in Wood, 1991): ``Society grants legitimacy and power to business. In the long run,
those who do not use power in a manner which society considers responsible will tend to lose
it.'' In effect, this is a re-statement of the concept of a social contract between the firm and
society.

Why CSR has become Important

Many factors and influences have led to increasing attention being devoted to the role of
companies and CSR. These include:
 Sustainable development: United Nations’ (UN) studies and many others have
underlined the fact that humankind is using natural resources at a faster rate than they
are being replaced. If this continues, future generations will not have the resources they
need for their development. In this sense, much of current development is
unsustainable—it can’t be continued for both practical and moral reasons. Related
issues include the need for greater attention to poverty alleviation and respect for human
rights. CSR is an entry point for understanding sustainable development issues and
responding to them in a firm’s business strategy.
 Globalization: With its attendant focus on cross-border trade, multinational enterprises
and global supply chains—economic globalization is increasingly raising CSR
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 concerns related to human resource management practices, environmental protection,
and health and safety, among other things. CSR can play a vital role in detecting how
business impacts labour conditions, local communities and economies, and what steps
can be taken to ensure business helps to maintain and build the public good. This can
be especially important for export-oriented firms in emerging economies.
 Governance: Governments and intergovernmental bodies, such as the UN, the
Organisation for Economic Co-operation and Development (OECD) and the
International Labour Organization (ILO) have developed various compacts,
declarations, guidelines, principles and other instruments that outline norms for what
they consider to be acceptable business conduct. CSR instruments often reflect
internationally-agreed goals and laws regarding human rights, the environment and
anti-corruption.
 Corporate sector impact: The sheer size and number of corporations, and their
potential to impact political, social and environmental systems relative to governments
and civil society, raise questions about influence and accountability. Even small and
medium size enterprises (SMEs), which collectively represent the largest single
employer, have a significant impact. Companies are global ambassadors of change and
values. How they behave is becoming a matter of increasing interest and importance.
 Communications: Advances in communications technology, such as the Internet and
mobile phones, are making it easier to track and discuss corporate activities. Internally,
this can facilitate management, reporting and change. Externally, NGOs, the media and
others can quickly assess and profile business practices they view as either problematic
or exemplary. In the CSR context, modern communications technology offers
opportunities to improve dialogue and partnerships.
 Finance: Consumers and investors are showing increasing interest in supporting
responsible business practices and are demanding more information on how companies
are addressing risks and opportunities related to social and environmental issues. A
sound CSR approach can help build share value, lower the cost of capital, and ensure
better responsiveness to markets.
 Ethics: A number of serious and high-profile breaches of corporate ethics resulting in
damage to employees, shareholders, communities or the environment—as well as share
price—have contributed to elevated public mistrust of corporations. A CSR approach
can help improve corporate governance, transparency, accountability and ethical
standards.
 Consistency and Community: Citizens in many countries are making it clear that
corporations should meet the same high standards of social and environmental care, no
matter where they operate. In the CSR context, firms can help build a sense of
community and shared approach to common problems.
 Leadership: At the same time, there is increasing awareness of the limits of
government legislative and regulatory initiatives to effectively capture all the issues
that CSR address. CSR can offer the flexibility and incentive for firms to act in advance
of regulations, or in areas where regulations seem unlikely.

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  Business Tool: Businesses are recognizing that adopting an effective approach to CSR
can reduce the risk of business disruptions, open up new opportunities, drive
innovation, enhance brand and company reputation and even improve efficiency.

Potential Benefits for Implementing CSR

1. Better anticipation and management of an ever-expanding spectrum of risk:
Effectively managing governance, legal, social, environmental, economic and other
risks in an increasingly complex market environment, with greater oversight and
stakeholder scrutiny of corporate activities, can improve the security of supply and
overall market stability. Considering the interests of parties concerned about a firm’s
impact is one way of better anticipating and managing risk.
2. Improved reputation management: Organizations that perform well with regard to
CSR can build their reputation, while those that perform poorly can damage brand and
company value when exposed. Reputation, or brand equity, is founded on values such
as trust, credibility, reliability, quality and consistency. Even for firms that do not have
direct retail exposure through brands, their reputation for addressing CSR issues as a
supply chain partner (both good and bad) can be crucial commercially.
3. Enhanced ability to recruit, develop and retain staff: This can be the direct result of
pride in the company’s products and practices, or of introducing improved human
resources practices, such as “family-friendly” policies. It can also be the indirect result
of programs and activities that improve employee morale and loyalty. Employees are
not only front-line sources of ideas for improved performance, but are champions of a
company for which they are proud to work.
4. Improved innovation, competitiveness and market positioning: CSR is as much
about seizing opportunity as avoiding risk. Drawing feedback from diverse
stakeholders can be a rich source of ideas for new products, processes and markets,
resulting in competitive advantages. For example, a firm may become certified to
environmental and social standards so it can become a supplier to particular retailers.
The history of good business has always been one of being alert to trends, innovation,
and responding to markets. Increasingly, mainstream advertising features the
environmental or social benefits of products (e.g., hybrid cars, unleaded petrol, ethically
produced coffee, wind turbines, etc.).
5. Enhanced operational efficiencies and cost savings: These flow in particular from
improved efficiencies identified through a systematic approach to management that
includes continuous improvement. For example, assessing the environmental and
energy aspects of an operation can reveal opportunities for turning waste streams into
revenue streams (wood chips into particle board, for example) and for system-wide
reductions in energy use, and costs.
6. Improved ability to attract and build effective and efficient supply chain
relationships: A firm is vulnerable to the weakest link in its supply chain. Like-minded
companies can form profitable long-term business relationships by improving
standards, and thereby reducing risks. Larger firms can stimulate smaller firms with

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 whom they do business to implement a CSR approach. For example, some large apparel
retailers require their suppliers to comply with worker codes and standards.
7. Enhanced ability to address change. A company with its “ear to the ground” through
regular stakeholder dialogue is in a better position to anticipate and respond to
regulatory, economic, social and environmental changes that may occur. Increasingly,
firms use CSR as “radar” to detect evolving trends in the market.
8 More robust “social licence” to operate in the community. Improved citizen and
stakeholder understanding of the firm and its objectives and activities translate into
improved stakeholder relations. This, in turn, may evolve into more robust and enduring
public, private and civil society alliances (all of which relate closely to CSR reputation,
discussed above). CSR can help build “social capital.”
9 Access to capital. Financial institutions are increasingly incorporating social and
environmental criteria into their assessment of projects. When making decisions about
where to place their money, investors are looking for indicators of effective CSR
management. A business plan incorporating a good CSR approach is often seen as a
proxy for good management.
10 Improved relations with regulators. In a number of jurisdictions, governments have
expedited approval processes for firms that have undertaken social and environmental
activities beyond those required by regulation. In some countries, governments use (or
are considering using) CSR indicators in deciding on procurement or export assistance
contracts. This is being done because governments recognize that without an increase
in business sector engagement, government sustainability goals cannot be reached.
5. A catalyst for responsible consumption. Changing unsustainable patterns of
consumption is widely seen as an important driver to achieving sustainable
development. Companies have a key role to play in facilitating sustainable consumption
patterns and lifestyles through the goods and services they provide and the way they
provide them. “Responsible consumerism” is not exclusively about changing consumer
preferences. It is also about what goods are supplied in the marketplace, their
relationship to consumer rights and sustainability issues, and how regulatory authorities
mediate the relationship between producers and consumers.

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 CHAPTER SEVEN

ETHICS AND MARKETING

This section highlights the ethical implications of marketing- the engine of most organizations
and how specific marketing activities have tended to take advantage of customers. How
through marketing communication, companies create the impression that they are socially
responsible when indeed, these companies are a menace to society.

Introduction
Johnson (1981) argues that most business decisions involve choices between two or more
goods or two undesirable options. A related challenge to ethical decision making is that
sometimes good and evil seem to be joint products. In other words, a desirable result is
accompanied by a negative one. An example of this is the pollution and exhaustion of resources
often accompanies high standards of living and technology.
Within business firm, the functional area most closely related to ethical abuse is marketing.
This is because marketing is the function of business charged with communicating and openly
satisfying customers. Thus, marketing is closest to the public view and, consequently, is subject
to considerable societal analysis and scrutiny.
The trouble with marketing communications ‘‘the public increasingly wants to know about
that stand behind the brands and products presented to them. And use their power to reward
‘good’ companies and punish the ‘bad’ ones’’ (Lewis, 2001). The two ‘C’s of marketing
communications: Contact and Convince border on ethics. The first part may be a great deal
simpler than the second, and this is where the importance of source credibility becomes
paramount, considering customer cynicism. It can be argued that any and every marketing
communications tool is capable of conveying a company’s corporate image and brand equity.
However, some communications vehicles can be more powerful and effective than others, such
as public relations, advertising and sponsorship (invariably dressed up as cause-related
marketing).
In a major cover story, Sales & Marketing Management (S&MM) provided the results of a
survey of 200 sales managers designed to find out just how far professional salespeople will
go to make a sale (Marchetti, 1997). Among the findings:
 49 Percent of surveyed managers say their reps have lied on a sales call.
 34 Percent say they have heard reps make unrealistic promises on a sales call.
 22 Percent say their reps have sold products their customers did not need.
 30 Percent say customers have demanded a kickback for buying their product or
service.
 54 Percent say the drive to meet sales goals does a disservice to customers.

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Ethical Theories and Marketing
This section discusses theories such as justice, deontology, and utilitarian theories. Most
importantly, these theories address ethics from the standpoint of marketing.

Justice Theory
Much of the most influential and fundamental concepts of justice theory comes from the
writing of Aristotle. For marketers, the most important philosophy to aid in the distribution of
value is the concept of procedural justice. As the name applies, its purpose is to develop rules
or procedures that result in fair or just outcomes. Procedural justice for marketers can be applied
in their dealings with customers, employees and suppliers. A clear understanding of the
procedures, rules, and responsibilities governing these relationships by all parties is absolutely
essential to achieve procedural justice.
When for some legitimate reason this information is not part of the relationship, ideals of justice
dictate that the more knowledgeable parties not take advantage of their position. Justice
provided by marketers to their publics is the relationships, and relationships based on trust seem
to work better.

Deontology
This theory suggests that individuals have a duty to satisfy the legitimate claims or needs of
others. These claims are determined by applying logic to an ethical rule, and the duties to others
are many and diverse under this philosophy it is our duty to pay our debts, care for our children,
and tell the truth because it is the “right” thing to do. According to the theory of categorical
imperative proposed by Kant “I ought never to act except in such a way that I can also will that
my maxim should become a universal law.” With this rule and the use of logic any action can
be evaluated to determine if it is ethical or unethical. These duties on the part of one individual
toward another create rights for the other. Thus, the duty of parents creates rights for children,
and the duty of debtors creates rights for the lender. For marketers, deontology is recognition
that all of the public’s with whom they deal have certain rights and that they have respective
duties. President John F. Kennedy provided a list of four basic rights for consumers, the right
(a) to safety, (b) to be informed, (c) to choose, and (d) to be heard, apply directly to retailers.
Concomitant duties of the marketer would be (a) to protect, (b) to fully inform, (c) to provide
and allow choice, and (d) to listen.
Utilitarianism
Is the teleological theory which states that individual should act so as to produce the greatest
possible ratio of good to evil for all of society. It forces the actors to consider all of the outcomes
of their action or inaction and to weigh one against another to determine that which is best for
society. Since one action is compared to another, utilitarianism promotes efficiency. That is, a
less efficient action is likely to produce less utility than a more efficient action, and is therefore
less ethical. Much of the justification for capitalism is based in utilitarianism. In addition, the
general public learns about the ideas of utilitarianism through the concept of the democratic
process which focuses on the majority rule. An important key for applying utilitarianism to
marketing is that the concept of “social good” includes “economic good” but is not limited to

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it. The primary function of a marketing operation is economic, but society expects that this
function be carried out in a society responsible manner.
The trouble with advertising, as the most visible communications tool, is continuously blamed
for a number of problems, including child obesity (see Kitchen et al., 2004), for being
pervasive, intrusive and pernicious (Laczniak & Laczniak, 1985). Nairn and Fine (2008) agree
that the presence of persuasion knowledge or cognitive defence can offer a plausible test of
fairness for informative advertising formats. However, they state that research findings of
neuroscientists and psychologists indicate that advertising techniques that employ evaluative
conditioning formats manipulate consumer behaviour by means of implicit attitude change.
Nairn and Fine (2008, p. 460) argue that: ‘‘… for these formats the appropriate test of fairness
is the ability to resist implicit persuasion. Without this, the child is like the target of subliminal
advertising: preferences are mediated by non-conscious, non-rational means that are
impossible to resist’’. The concern is not merely with children, however. Nairn and Fine write
that even adolescents may have difficulty to resist implicit persuasion, due to lack of possession
of sufficient cognitive control capacities. It can be argued that children tend to pay more
attention to and be concerned with ethical and environmental issues compared with their
parents.
Heavy press advertising in the UK by major oil companies such as BP and Shell, usually
covering an entire page or even two pages at times (see Shell’s advert in The Guardian
newspaper, 1st December, 2008) boasting about their ‘green’ initiatives is one example of such
a persuasive approach. These companies’ main products are pollutants, and any investment in
alternative energy tends to be a minute percentage of overall company investment in the
production of petroleum. In a similar manner, BP has been re-branding itself. It uses lower case
letters ‘bp’ to denote a more friendly face, and uses the letters to highlight its move to ‘beyond
petroleum’. It, too, advertises heavily in the UK press for reasons similar to Shell. Greenpeace’s
media head refers to the growing amount of ‘cynical advertising’ by organisations with poor
environmental track records, such as oil companies.

Claims made by advertisers about their green attempts do not negate the overall impact of their
operations and/or products on the environment. Shell’s adverts in The Guardian suggested that
it had come to save the world (Monbiot, 2009), ‘‘tackling climate change and providing fuel
for a growing population seems like an impossible problem, but at Shell we try to think
creatively’’. The same company boasted in the year 2000 that it would be investing US $1
billion in renewable energy between 2001 and 2005. However, no figures for its renewable
budget have been produced. The company states that it is investing ‘significantly’ in wind
energy, but not clarifying what ‘significantly’ means. Car manufacturers, too, have jumped on
the green/ethical bandwagon, and use advertising in newspapers for this purpose. Fiat
combined lower cost and ecology to advertise its cars (see The Guardian newspaper 29th
February 2008), while Toyota was actually criticised by the Advertising Standards Authority
(ASA) for making misleading claims about the environmental credentials of its Prius hybrid
car (Guardian, 18th June, 2007).
Volkswagen was also under the spotlight for an advertisement in which its Golf GT TSI was
claimed to have lower CO2 emissions than ‘other engines with similar power outputs’. Scottish
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and Southern Energy Group in the UK made an unsubstantiated claim that it planted trees in
order to balance out the CO2 emissions of its customers’ gas heating and household waste
products. It was duly criticised by the ASA in 2007, following a complaint.
EasyJet’s claims to have more environmentally friendly airplanes were inaccurately portrayed
as such according to ASA, again following a customer complaint. Indeed there could be
advertisements that appear to make similar claims but which may escape the watchful eyes of
critics. Amongst the major criticisms of advertising is that, without such expenditure, the
product would cost the consumer less money. However, companies such as Kellogg’s that
spend an approximate £50 million per annum on advertising see it as an investment. The results
of such investment are reflected in their market share (Lawrence, 2008). An investigative UK
magazine called which? Had carried out research that analysed 275 major breakfast cereals in
2006. The outcome was that 75% contained high levels of salt, based on the guidelines of Food
Standards Agency (FSA). Furthermore, approximately 90% of those targeted at children were
high in sugar, 13% high in salt and 10% high in saturated fat (Lawrence, 2008). When a UK
communications watchdog, Ofcom, proposed to restrict TV advertising to children of
unhealthy foods, Kellogg’s campaigned vigorously to stop such limitations.
According to Lawrence (2008, p. 22) the managing director of the aforementioned company,
when asked to reduce sugar and salt content of cereals even further (following a 25% reduction
in salt by the firm), had replied: ‘‘… and the risk is, if you take the salt out you might be better
off eating the cardboard carton for taste’’. With reference to breakfast cereals, they are
invariably advertised as ‘healthy eating’. However, according to Lawrence (2008), one of the
highest costs is not the value of ingredients, nor the cost of production, but the marketing, with
a typical 20–25% of the sales value. Needless to say, a large percentage of that expenditure is
allocated to advertising with children as the target audience. Shimp (1997) cites the following
negative effects of advertising on society: It is untruthful, deceptive, manipulative, and
offensive and in bad taste.
 It creates and perpetuates stereotypes.
 It encourages purchase of items not really needed.
 It plays upon individuals’ fears and insecurities.

Fan (2005), while remarking on advertising as the most visible element of marketing, suggests
that it is branding that is at the heart of any marketing communications, citing Benetton’s
controversial 1990s advertising campaigns. Schroeder and Borgerson (2005, p. 578) write that
‘‘it is no longer satisfactory to associate advertising solely with persuasion, rather advertising
must be seen as a representative system, with pedagogical as well as strategic functions’’.
Research carried out by Bowd et al. (2006) amongst stakeholders and managers of a major
northeast England retail centre relating to CSR communications found that both groups shared
a similar view of CSR. Furthermore, the most successful methods of communicating CSR to a
wider spectrum of stakeholders tended to be on-site marketing communications techniques
highly visible to users. Amongst these were the large-screen TV in the shopping centre, centre
brochures, signs within it as well as the actual ‘experience’, i.e., experience from the interaction
of stakeholders with the retail mall. From a theoretical point of view, this emphasises the
importance and relevance of the concept of customer involvement. The above study also found
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that ‘‘…only a limited range of CSR activities were known to the stakeholders as a whole and
via a limited number of communication methods. This level of awareness and the success of
communications methods appear to be linked to what is communicated and evident to centre
users’’ (Bowd et al., 2006, p. 152). A unique means of communicating company CSR has been
in the form of social responsibility disclosure utilising marketing communications tools such
as advertising and/or the Internet, and so forth.

Source credibility and source attractiveness

Recent press advertising by BP and Shell in the UK explaining carbon footprints and so forth
could not be taken seriously coming from companies whose products pollute the atmosphere
and which minimally invest in renewable energy. In a recent interview carried out by The
Guardian newspaper of the UK, Shell’s chief executive was asked: ‘‘is there any investment
you would make on ethical grounds?’’ (Monbiot, 2009). The chief executive was unable to
provide an example. The critics of advertising see, for instance, the creation of ‘hyper-reality’
by the media, where imagery replaces reality in the society, i.e. the gap between image and
reality becomes indistinguishable.
Mellahi and Wood (2003) state that marketing managers have collectively gained the power to
shape the choices and lifestyles of large numbers of consumers. Such power could also be used
to alter existing ethical norms and/or manipulate them in the company’s interest. As for public
relations, it is invariably viewed with suspicion in the oft-ridiculed guise of ‘spin doctoring’.
Ewen (2003) said that the history of public relations (PR) is one of a battle for what reality is
and how people will see and understand it. Public relations can be employed as a major
marketing communications tool to convey an organisation’s CSR policies to its stakeholders.
However, if one is to cite Grunig and White’s (1984) four models of public relations, perhaps
the ‘two-way symmetric’ approach would be an ideal choice. The more recent addition, i.e.
online communications in the form of websites and emails, has not been treated with any more
respect. Regarding CSR communications the examples of British American Tobacco (BAT)
and its social responsibility website or the British arms manufacturer BAE systems’ similarly
titled web offerings further fuel suspicion, cynicism and derision. The World Health
Organisation (WHO) states that smoking causes more death and disability than any single
disease. Sadly, profit hungry companies are still permitted an unfettered trade, as well as
investing in branding designed to attract new customers as old ones die off (The Guardian
newspaper, 2008). The defence used by the tobacco companies refers to the advertising ban
that came into effect in the UK in 2003. Alternative means of covert ‘advertising’ have been
found by these firms. The flash of gold that transforms Marlboro Lights into a handbag
accessory is advertising in all but name, according to The Guardian (2008).
In the past, without making text-based claims about their products, visual imagery had been
used, such as the lone cowboy roaming the American West (Schroeder & Borgerson, 2005).
Pollach (2005), in her research on World Wide Web (WWW) and corporate self-presentation,
recommends that companies use a number of persuasive appeals, such as third-party evidence
or humanisation of their web-based messages, in order to enhance credibility.
Unfortunately, firms have a habit of making gross overstatements when describing themselves.
Audience involvement can also be employed to remedy this problem. However, at times,
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attitude change and image formation might be required to help improve the situation. The
former is required at times when an existing organisation attempts to alter adverse perception
of it and thus create loyalty amongst customers. The latter can benefit a newcomer in the
marketplace in the absence of any stakeholder perception.
A more credible source might be an organisation that is well known for its CSR reputation.
The UK Co-operative organisation’s press advertising (Guardian Magazine, 20 September,
2008, p. 80) reads in large lettering: ‘‘our green policies are so effective (that) other retailers
are recycling them’’. It says that it would be even more proud if more of its
ethical/environmental practices were ‘recycled’ by its competitors. That particular organisation
has been voted Britain’s greenest high-street retailer. This is related to its CSR activities,
amongst which is an investment of £1 million to supply free solar panels to UK schools. A
January 2008 press advertisement by the respectable Marks and Spencer (M&S) company
asked readers to take their unwanted M&S clothes to their local Oxfam, and receive a £5 M&S
voucher to use next time they spend £35 or more at a M&S store. What were the motives behind
M&S’s advert in this case?
To highlight their CSR credentials by encouraging recycling and helping Oxfam or to create
‘traffic’ in their stores by offering the £5 voucher? Why was there a minimum £35 clause
attached to this CSR effort? Banks and financial institutions do not usually come across as
heroes of morality or CSR. Social responsibility disclosure by six Irish banks and four
international institutions incorporating websites were examined by Douglas et al. (2004). The
findings suggested that the Irish financial institutions seemed to be lagging behind international
counterpart’s social responsibility disclosure. They seemed to focus mainly on corporate
governance and human resources, with no environmental policy disclosures.

Media choice
The choice of media for CSR information disclosure is dependent on the target audience.
Zeghal and Ahmed (1990) also add that the lower cost of producing and distributing brochures
allows organisations to treat in greater depth themes of special interest. Branco and Rodrigues
(2006, p. 235) suggest that ‘‘such reasoning can also be used when analysing social
responsibility disclosure through the internet…it is natural for companies to give prominence
to community involvement and products/consumers information’’.
Pollach (2005) asserts that the WWW and corporate websites are superior to the conventional
mass media in a variety of ways. She cites the WWW’s capacity to transmit an unlimited
amount of information to all potential target audiences, making a reference to Sharp (2001).
Furthermore, Pollach views the WWW as a ‘pull’ medium, indicating that audiences tend to
have more control over what they wish to view compared with the traditional media. As active
information seekers, such audiences process the information available more effectively than
that accessed/offered via traditional media. In addition, messages conveyed to audiences by
organisations are not filtered by gatekeepers, but controlled by the firms themselves (White &
Raman, 1999). Ultimately the WWW provides organisations with the ability to learn more
about their stakeholders by offering interaction and encouraging dialogue. Added to the
usability of the WWW, Pollach (2005) includes credibility and value of the content as further

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benefits. However, what Pollach fails to highlight is that, within the choppy oceans of company
websites, locating a beacon of trust, reliability and credibility becomes increasingly difficult.
In the absence of media gatekeepers or watchdogs, people become more concerned with the
quality and reliability of web-based information, especially when attempting to put across an
ethically glossy corporate image. One method to overcome this mistrust is the provision of
hyperlinks by companies to trusted organisations such as NGOs, academic institutions and/or
government departments (Stewart, 2003). The reference to the M&S advert earlier encouraging
customers to donate used clothing to Oxfam is perhaps an example of such a tactic. Other
marketing communications tools are not immune to criticism. In the light of the above, the task
of the marketing communications manager is not easy and becomes even more difficult when
conveying CSR messages. For any communication to be successful, source reliability and
credibility are essential requirements. Therefore, the nature of the industry and the company’s
perceived image and reputation can play crucial roles in the transmission of such messages.
Furthermore, the company must also walk the talk, i.e. put words into action. Mere rhetoric
will not fool stakeholders. Overall, an integrated, co-ordinated and holistic approach is required
to ensure CSR communications can be effective. Basu and Palazzo’s (2008, p. 125) CSR
dimensions of the sense making process have the following constituent parts:
 Cognitive: What firms think
 Identity orientation and legitimacy Linguistics: What firms say
 Justification and transparency Conative: How firms tend to behave
 Posture, consistency and commitment for CSR communications to succeed, paying due
attention to all those main dimensions would be a requirement. A further explanation
of the second component, i.e. linguistics, might be useful here. As far as justification is
concerned, this is the manner in which firms justify their actions to others or as Ferraro
et al. (2005, p. 16) write: ‘‘how we talk about behaviour influences that behaviour’’.
Transparency, on the other hand, can either be in a balanced manner, where scientific
and documented evidence is offered, or in a biased fashion, where only positive results
are made available. Balmer (2006), in his six ‘C’s of corporate marketing, reiterates the
importance of integration and co-ordination of all those mix elements. The absence of
or limited attention to one or more could jeopardise the task of corporate marketing.
Below is an explanation of the six ‘C’s: Character, also known as corporate identity –
‘‘what we indubitably are’’ Culture, also known as organisational identity – ‘‘what we
feel we are’’ Communication, also known as corporate communication – ‘‘what we say
we are’’ Conceptualisations, also known as corporate reputation – ‘‘what we are seen
to be’’ Constituencies, also known as marketing and stakeholder management –
‘‘whom we seek to serve’’ Covenant, also known as corporate brand management –
‘‘what is promised and expected’’ For the purpose of marketing communications and
CSR, missing from the above model are the words consistency, integration and
commitment. Messages conveyed by the firm, whether aimed at internal customers or
other stakeholders, should be consistent, and whatever media are employed, the
integration of marketing communications must be taken seriously. Senior-management
commitment to CSR strategies and their implementation as well as effective

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 communication would also be crucial to the success of such endeavours. Senior
management must view expenditure on CSR and its communication as an investment
and not a mere cost.
Specific Theoretical Analysis of Marketing Issues
This section views ethics in marketing from five main perspectives and addresses these issues
from theoretical angles. Understanding this section will help businesses and managers to plan
and implement morally justified relationship marketing operations. The agenda consists of five
parts:
(1) The ethics of keeping promises
(2) The ethics of truth-telling
(3) The ethics of equal treatment of customers.
(4) The ethics of commitment
(5) The ethics of communication.

The Ethics of Keeping Promises

Deontological ethics provides an appropriate perspective from which we may address and
elaborate the principle of keeping promises. The Kantian perspective suggests this duty as the
basic moral principle which should guide our behaviour. On the practical level, for example,
contract law is promise based. As the “promise principle” provides the moral basis for contract
law, it can be called the legalistic stance. Individuals’ mutual agreements and contracts are
usually based on the promise-keeping principle.
It follows that people may voluntarily impose obligations on themselves in order to join
together for mutual advantage. This also includes co-operation: persons may work and act
together and fulfill their own and the other party’s goals and needs. While this kind of co-
operative relationship calls for trust, keeping promises is the means of generating trust. From
the utilitarian perspective it is not obligatory to keep promises if the outcome of an action
including promise violation will be better to most of the people than the outcome of an action
where promises are kept. Utilitarianism does not value people’s will to keep promises whereas
deontology regards this duty as indisputable. The promise principle rejects the classical
utilitarian model of contract as not reflecting contemporary law or legal values. Business
organizations following the promise principle would be morally obliged to keep their promises
regardless of whether or not they are legally binding (Gundlach and Murphy, 1993).
Responsibility implies an obligation which is the manifestation of individual ethical duties. It
is the link between the manager, his/her position, and the organization. Managers usually have
several private and professional duties. The manager following relationship marketing
philosophy has duties typical for his profession, and thus the ethics of duty must be put forward.
Kantian ethics stresses action motivated by the moral will: an act is morally right if it happens
by aiming to do right things. The relationship marketer in an organization for instance, may
face many controversial duties which are proper and favourable in certain situations. However,
he/she has to seek a balance between the interests of various stakeholders with different
requirements. Thus priorities must be defined and, for example, the strict Kantian position does
not offer a clear solution. There is, however, an alternative possibility for solving the problem.
The answer may be the prima-facie duties suggested by Ross (1930). The most important duty
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is the duty of non-malfeasance. Thus the manager must be able to ignore all his professional
duties (i.e. duties created by his job) if the duty of non- malfeasance exists in a situation.

The Ethics of Truth-Telling

Truth telling is an issue often connected with the problems of keeping promises. As a general
maxim it is often stated that you must always tell the truth, nothing but the truth, nothing to
hide, nothing to add. This may be the ideal, but the practices of everyday life are more
complicated and demand more fluid solutions. Let us take a glance at what the different
positions of ethical theories are saying about this issue. If one takes a deontological stance, one
can say that you must tell the truth because “the moral will” demands it, despite the
consequences caused by the act under consideration.
A utilitarian may say that you must tell the truth only if the outcomes of truth-telling would
cause more happiness or utility to the greatest number of people, compared with not telling the
truth. But you cannot always know all the consequences of your actions. So it is difficult to
modify truth-telling rules (rule-utilitarianism) which would guide you to the best possible
outcomes, which maximize the utility for the majority. Could lying be a virtuous activity?
Virtue ethics offers us a model of virtues which we must obey in order to be moral. An
imaginary test: can we imagine a community of thieves in which lying is seen as a virtue? All
members of the community will lie to each other as much as possible. Further, we must ask if
the societal life is then possible at all. The answer is that lying destroys the basis of communal
life, because no one can trust another person’s promises or liabilities. Lying cannot be a virtue,
but merely a vice.
The considerations mentioned above are quite abstract and the managers operate in the real
world in which all is not black and white. Usually he/she operates in the “grey” zone in which
moral and immoral activities lie near to each other. The manager must decide and act
casuistically; this means that the situation usually rules when he/she must to tell the truth. The
manager is not always able to tell the truth, but as the basic premise he/she is demanded, by the
moral theories, to act mostly honestly and tell the truth. Another interesting issue is the telling
of white lies. A manager may be forced to tell “white lies” for many reasons. He/she could see
the situation as one where his/her business is a source of pressure: “Other people (in different
organizations) tell lies, if I do not, I will miss my business opportunities, so I am forced to lie”.
Is this excuse good enough? In any case, we can try to give the manager some advice and try
to improve his/her decision situation. For example, we can draw on the Rossian prima-facie
duties mentioned earlier; thus one must draw up a schedule of duties to obey with the order of
preferences. A conditional maxim could be that one must never lie if one can see the direct
harm caused by this lying as being so severe that someone could die or be badly injured as a
result.

The Ethics of Equal Treatment of Customers

In the operations of business organizations, the equal treatment of the partner(s) is an essential
feature of action principles. The notion of fairness is widely recognized as essential for
mutually satisfying exchange. Fairness is also tied to the concept of distributive justice.
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Furthermore, Kantian ethics stresses equal treatment of all human beings. Kant’s (1959) point
is implicitly recognized by managers and by the whole business community as corporate
officials despair of immoral practices of corporations and denounce executives engaging in
shady practices as undermining the business organization’s itself.
Kant captures this conviction in what he calls the categorical imperative: “One ought never to
act unless one is willing to have the maxim on which one acts to become a universal law”.
Cheating, kickbacks, and bribes cannot be made universal laws. In reality, there are several
societies and business environments where bribery is the necessary practice for successful and
profitable firms. In spite of this, we cannot propose bribery as a general moral maxim.
According to Kant, such actions are universally and necessarily immoral, quite independent of
the desires and culture of the actor. In other words, the principle of equity arises: “treat other
people like you wish to be treated yourself”. Treat all your clients in the same manner by
honouring their wants and needs (Kant, 1959).

The Ethics of Commitment

In business transactions, participants must be committed. Commitment can be defined as an
affective attachment to an organization, the intensity of which can vary with the nature of the
relationship. Thus commitment is conceived of as the strength of an individual’s identification
with, and his/her involvement in, the organization. It is characterized by three factors. First,
stability refers to a strong belief in and acceptance of the organization’s goals and values.
Second, sacrifice means a willingness to exert considerable effort for the benefit of the
organization. Third, loyalty means a definite desire to maintain organizational membership
(Modway et al., 1979).
Stability is needed to balance the conflicting interests of different stakeholders. Without
stability business transactions are not possible. Stability presupposes trust, and only mutual
trust can be the cornerstone of successful business organization’s activities. Sacrifice means a
way to sacrifice one’s situational benefit for the sake of the business partner. Through this,
commitment to business springs up and good conditions are created for long-term relationship.
Loyalty is necessary for running successful operations. Loyalty means getting customers to
commit themselves to the rewarding long-term business transactions (Modway et al., 1979).
The ethical question handles the means by which commitment is attained. Some instruments
used by managers, for example strong persuasive elements, persuasive rhetoric or some
psychological tricks, are obviously immoral. To avoid such practices, the golden rule “do unto
others, as you would have others do unto you” is a good guide.

Ethics of Communication
The German social philosopher Habermas (1993) has put forth a theory of communicative
action. It is called “The theory of distorted communication” and includes some strong
contractual elements. Communication is a central element in business organizations. It offers
a theory of equal negotiating partners and an opportunity for domination-free communication.
The theory displays a rational way to proceed in communication practices; it assumes that it is
possible for the parties to achieve an agreement by using effective negotiating mechanisms
(Habermas, 1993). The basic idea is that every individual has the right to domination-free
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action. An application to marketing (the buyer-seller relationship should be evaluated and
reconstructed) on the base of ethics of mutual communication.

Conclusion
In short, marketing communications can be employed for ethical and corporate social
responsibility purposes. It acknowledged the negative perception that consumers and many
businesses have of marketing in general and marketing communications tools in particular. The
proliferation of ethical and green claims by companies, some of which appear in the so-called
‘sin industries’ category, has contributed to growing consumer scepticism of such CSR
communications and green-washing.
In Ghana, the mining sector is applauded for its significant contribution to the growth of the
Ghanaian economy and therefore, these companies are celebrated. However, the very activities
of these companies are a nuisance and a threat to human society through environmental
degradation, damage to water bodies etc.
In addition, the UK-based Co-operative organisation, of which the Co-operative Bank is a part,
has been used as a glowing example of a financial institution that offers the customer an ethical
choice. Its communications with the stakeholders could be suggested perhaps as more of a
‘marriage of convenience’, as far as marketing communications and CSR are concerned. Its
press advertising was used in this paper to emphasise the usability of marketing
communications in terms of message conveyance of the organisational CSR. However, source
credibility and reliability were also cited as major requirements for CSR message acceptance
and communications effectiveness. Examples used from the so-called ‘sin industries’, such as
tobacco manufacturers, oil companies and car producers, desperately attempt to convey an
ethically acceptable and even attractive corporate image.
There is still a great deal of public scepticism and suspicion in relation to CSR per se. For
instance, Frankental, of Amnesty International, views CSR as a PR invention. The Corporate
Watch 2006 Report makes similar comments. The latter states that ‘‘like the iceberg, most CSR
activity is invisible…It is often an active attempt to increase corporate dominations rather than
simply a defensive ‘image management’ operation’’. However, the examples of the purchase
of the Body Shop, Ben & Jerry’s and Green and Black’s by multi-national companies is an
indication of growing customer interest in ethical products and firms. Communications will be
essential to their survival, as well as maintaining ethical image (and reputation) or safeguarding
their competitive advantage through CSR.
Advertising, PR and sponsorship (cause related marketing) have the potential to make major
contributions to publicising and highlighting a transparent, consistent and socially responsible
corporate image. Senior-management commitment and dedication to CSR in a holistic manner
is absolutely crucial. ‘Shotgun weddings’ may lead to acrimonious divorces and expenses.

Since the 1950s, CSR (e.g., Bowen 1

953) along

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 CHAPTER EIGHT

HR AND ETHICS

As HR decisions largely affect human beings, subjecting them to ethical analysis has
increasingly attracted attention. People are interested in knowing whether employee’s
employment contract was terminated fairly; whether performance was fairly assessed etc. In
this chapter, students will be taken through critical HR issues and therefore, would be expected
after the chapter to be able to:

 Analyze HR decisions from the point of view of justice/fairness, rights and duties, and
utilitarian perspective

Introduction

A job is much more than an assigned task in an organization or a source of income. It is also
for many people a part of their self-identity, a source of social connections, a source of
important financial benefits such as health insurance and retirement income, and more.
Managerial actions that terminate an individual’s employment have major repercussions for
that individual. Specifically, some of the responsibilities of managers are to choose new
employees from a pool of applicants, assess performance as well as terminate the contract of
engagement between the employer and employee. With respect to job placement, if there is
one open position and there are several applicants, then a valuable resource (the job) will be
awarded to one applicant and denied to others. Anyone who has anxiously awaited the results
of their application and interview for a job knows that what happens here matters. There are
consequences that make the successful applicant happy and satisfied and the unsuccessful
applicants unhappy and dissatisfied. As long as the manager makes the choice, he is making a
decision, in the role of manager that has ethical implications both for the new employee and
for the rejected candidates.

The hiring process

Let us assume that only one open position exists and that its scope is already determined. Let
us also assume that minimum qualifications for the job have been established and have been
made known to the applicants. Let us further assume that the open position has been advertised
or posted in some manner and that a number of individuals have applied for the position.
Finally, let us assume that more than one applicant meets the minimum qualifications for the
job. There are obviously cases where one or more of these assumptions will not hold true, but
the assumptions as stated will let us make an initial examination of the issues without too many
complicating factors.

To start with, the primary reason why a manager has his/her job is not to be fair, but to
contribute through her section or department or division to the success of the company. So,
when a manager is in the position of selecting a new employee from a pool of qualified
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candidates, the primary goal of the decision is to contribute to the success of the company. The
hiring decision has two broad implications for the unit’s and the company’s success: (a) the
person chosen should be the one most likely to perform well in the job for which he is being
hired and (b) the pattern of hiring decisions, in the unit and in the company at large, should be
such as to contribute most to the company’s success.

Once the most qualified candidates have been identified, the hiring manager must still make a
decision. From the conversation with hiring managers, such decisions are often made based on
what is called “chemistry”. This seems to mean personal intuition, in practice. In other words,
there are no objective, measurable job-related criteria on which the candidates differ, yet
something tells the hiring manager to offer the job to one candidate rather than to another.
Suppose that he prefers working with women and one of the qualified applicants is a woman.
Is it morally acceptable for him to hire her on this basis? If his department or unit has very few
female employees, or for that matter, very few male employees, there may be considerations
of equal opportunity that could legally impact his decision.

Problems arise if a series of hiring decisions is based on these personal criteria. Suppose that
manager who prefers working with attractive women has, over a period of time, seven different
hiring decisions to make as natural turnover occur. On each occasion, there are several qualified
candidates and one of these in each case is an attractive woman. Eventually, this manager will
be presiding over a work unit made up entirely of attractive women. There now appears to be
a pattern of discrimination against male and less attractive women.

Analysing Hiring Decisions

Utilitarian view

Utilitarianism says that the moral act is the one that creates the greatest good for the greatest
number of people. Using this approach, the manager who is trying to decide which hiring
choice is most ethical will examine the impacts of that hiring choice. Obviously, the candidate
who is hired will experience happiness and feel that he/she has been the recipient of good. If
the manager feels that he has made the best choice, he also will experience happiness. There is
no way to know for sure that any candidate will work out in practice, but if the manager is able
to hire a candidate who meets the minimum qualifications for the job and appears to be the best
candidate in the pool, there is at least a reasonable chance for success. The manager may also
feel a certain degree of happiness because the search is over, the position is filled and he can
get on with other things. Managers are partly evaluated on their ability to choose new
employees, since this is a key part of their jobs. If the new employee succeeds, the hiring
manager also gains by reason of having made a good hire.

The candidates who are not hired are also impacted by the decision. Even though they will
probably feel unhappiness at failing to get an offer of the job, they may or may not find another
job that suits them as well or better. It is good for the hiring manager to remember, though, that
those rejected for the position will feel rejected. To the extent that they understand the hiring
process, if they perceive that it was fair, their unhappiness at not getting the job may be
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somewhat reduced. The other employees in the unit, who will work with the new hire, will gain
happiness if the choice was a good one and the new employee proves to be successful. They
will suffer unhappiness to the extent that this is not the case.

Thus, the utilitarian approach requires the hiring manager to think about the consequences that
may extend for months or years after the decision is made, especially when the position being
filled is at a relatively high level.

Rights and Duties Analysis

At the individual’s disposal are four rights: human rights, legal rights, position rights and
contract rights. In considering the rights and duties approach to employment situation, focus
will be on legal and position rights. To start with, there is no human right to a job. If there were,
someone or some organization would have a corresponding duty to provide a job to each
person. Position rights are rights that an individual holds by reason of their position, such as
police officer or chief financial officer. The position of the applicant does not entitle an
individual to a job, although it does entitle an individual to be treated fairly in the selection
process, and it establishes that employers have a corresponding duty to treat all applicants
fairly. Finally, an individual can have a contractual right to keep a job once it is attained, but
he/she does not have a contractual right to obtain a job. Similarly, individuals do not have a
legal right to be placed in a given job, but in the United States and some other countries, they
do have a legal right to be treated fairly as applicants in the employment process. The right of
the applicant to be treated fairly corresponds to a duty of the hiring manager to treat all
applicants fairly. There is also a duty of the human resources department, where one exists, to
see that hiring procedures provide for fair treatment of all applicants and that these procedures
are, in fact, followed by hiring managers. Thus, one obtains the rights of an applicant simply
by applying for a job. Fair treatment for qualified applicants is different from fair treatment for
unqualified applicants.

Fairness and Justice Analysis

Under this perspective, we defined the moral act as the one that treats similarly situated people
in a similar manner, with regard to both process and outcome. When applied to employment
decision, this is obviously a perspective that has relevance. This perspective posits that similar
treatment is not the same as exactly equal treatment. Accordingly, the fairness and justice view
stipulates that similar treatment is owed to similarly situated people, but not to everyone
regardless of their situation.

Broadly speaking, since the main reason for hiring a person into a vacancy is the expectation
that the person hired will be the best contributor to the success of the work unit by performing
well, it is reasonable to determine what minimum set of knowledge and skills the person hired
should bring to the position. People who lack the minimum knowledge and skills to perform
the job successfully are not similarly situated compared to those who have the skills. It is fair
and just to make this distinction and to make it early in the hiring process. Some applicants
who lack the required skill and knowledge will plead that they really can do the job, if just
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given the chance. That task of the hiring manager, though, is to hire the applicant most likely
to succeed in the position. If the minimum qualifications have been determined reasonably,
then using these as the first screen to eliminate unqualified applicants is quite fair.

It sometimes happens that a hiring manager will review a pool of applicants and identify one
or two, saying something like this: “Gee, they don’t meet the minimum qualifications, but they
are very strong in some areas, and I know personally that they are really dependable, so let’s
include them anyway. “ A moment’s reflection will show that what this actually means is that
the minimum qualifications are really not that at all, but a sort of guideline to be ignored based
on the manager’s individual judgment of each candidate. While the setting of minimum
qualifications is probably as much art as science, if they have any meaning for screening
candidates, they must apply to all candidates. Perhaps they are set wrong and dependability
should be allowed to substitute for education or experience. If that is the case, they should be
changed and the new standards should be applied uniformly to the entire applicant pool.
Otherwise, similarly situated people will not be treated in a similar way.

In the normal case, the original pool of applicants will be separated into two groups: those who
meet the minimum qualifications for the position and those who do not. Since the two groups
are not similarly situated it is fair to treat them differently.

Promotion

Assume a job opening is to be filled by promotion instead of by outside hiring. Suppose the
open position is that of supervisor. The hiring manager surveys the employees currently
working in the section that has the open supervisory position, selects the best technician
(accountant, claims examiner, engineer) in the section and promotes him to supervisor. In this
situation, the newly promoted supervisor does not perform well as supervisor and ends up either
being demoted to his former position as a technician or leaving the company entirely. The
section has lost a good technician, at least temporarily, and gained a poor supervisor. What
went wrong?

The job of supervisor requires different skills than the job of technician. A good technician
whether an accountant, a claims examiner or an engineer, is comfortable with details. He knows
a lot about some technical area and can apply his knowledge easily to the work at hand. It could
be said that he works best in a world the size of a computer monitor. A good supervisor is
aware of what is going on around him. He knows who is doing what throughout his section.
He is comfortable interfacing with other supervisors, with bosses and with the people in the
section. He switches easily from training a new employee to meeting with the department’s
other supervisors, to working on budget forms. He has a sense of how his section’s work
contributes to the larger efforts of the rest of the company. He is able to adapt to changing
circumstances and respond to both opportunities and deadlines.

Utilitarian Analysis

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 According to perspective, if the unqualified or significantly less qualified employee is
promoted, there is a reasonable chance that he will not perform adequately in the new job. If
this occurs, it will result eventually in his removal from the job, after a period of poor
performance. This period of poor performance will most probably be a difficult and unhappy
time for the employee, for those he oversees and for his boss. If he does perform well, he may
well have to overcome obstacles presented by the initial expectation of those he supervises that
he will fail because he lacks qualifications. This period of proving himself will be a time of
struggle for the new supervisor, which he may or may not enjoy. It will probably be an anxious
time for those he supervises and for the boss who promoted him and is observing the struggle.
In neither case is it likely that the promotion will result in the greatest good for the greatest
number.

Rights and Duties Analysis

From the purview of rights and duties, an employee does not have a right to promotion simply
by being an employee. He also does not obtain such a right by performing well in his present
job. If managers had a duty to promote all employees who well, many organizations would
soon become exceedingly top-heavy. Senior managers who perform well would have to be
promoted to even more senior positions. Finally, what would we do with CEOs who perform
well? As earlier discussed, employees have a right to be treated fairly if they apply for a
promotion; just as other applicants for the position have a similar right. They do not have a
right, by their position as employee, to extra consideration (unless being an employee is a
legitimate qualification for the job) or to be awarded the job simply because of their status as
employee.

Fairness and Justice Analysis

Here, the issue turns on whether the current employee is similarly situated as an applicant with
other applicants from outside the company. Again, assuming that the company does not have
a policy of promoting only from within, and assuming that the similarly situated group is
defined as those having similar qualifications, then the inside employee should be seen as a
member of the applicant pool, or a qualified member of the applicant pool. If, for legitimate
job-related reasons, inside candidates are preferred, then the employee is not similarly situated
with outside candidates, and fairness does not require treating him in a similar manner in terms
of the selection process. This is because fairness and justice requires that similarly situated
people be treated similarly regarding both process and outcome.

There are benefits to promoting good employees in terms of company loyalty and encouraging
other present employees to work hard and strive for promotion within the company.
Nevertheless, there are disadvantages to promoting unqualified or less qualified individuals to
positions of increasing responsibility. It is fair to all applicants if the most qualified is offered
the open position. It is unfair to offer the position to those significantly less qualified or
unqualified simply because they currently work for the company and perform well in their
present position (in the case of the unqualified applicants, they will experience the worse form
of Peter’s Principle).
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Performance Appraisal and Compensation

Introduction

An organization can choose or award compensation increases based on performance, or based

on inflation, or based on position and longevity, or based on some combination of these factors.
However, these are different bases for making compensation decisions, and the organization
needs to be clear about what it is trying to do in order to manage compensation rationally.
Managers generally seem to prefer merit systems, whereby at least part of any increase in
compensation is based on performance. Some workers, particularly those in union
environments, seem to prefer some basis other than merit, so that individual managers will
have no say in which workers receive how much increase in their compensation.

Merit-based compensation decisions and performance appraisal

Compensation increase will be granted to some or all the employees reporting to a manager,
and the basis for such increases and their amounts will be the manager’s evaluation of each
employee’s performance during a specified period. There are several reasons why managers
have as part of their job the evaluation of employees who report to them. One is related to
compensation increases. Another is to identify workers who are not performing adequately and
either help them to improve their performance or remove them from their jobs. Another is to
identify particularly promising or high-performing employees and prepare them for promotion
if they seem capable of performing in a higher position. Still another reason why performance
evaluation is part of a manager’s job is that almost everyone could do their job at least a little
better.

Lying and Truth-Telling in Performance Appraisal

What sort of uses might be made of performance appraisals? First of all, they may be used to
determine compensation increases. They may also be used to identify promising employees in
order to prepare them for higher positions. They may be used for progressive discipline
(graduated warnings leading to possible termination for poor performance). They may be used
in case of layoffs etc. In total, these uses of performance appraisals have a lot to do with how
a company manages its human resources. If all of this is based on lies, things are clearly not as
they should be, and smart managers will no longer rely on performance appraisals as a source
of valid information. For this very negative consequence to occur, it is not necessary that all,
or most, or even half of the performance appraisals contain lies. It is enough that lying is known
or suspected to occur with some frequency for smart managers to decrease or cease their
reliance on the whole performance appraisal system for information.

There is a further harmful effect from a pattern of lying on performance appraisals. Employees
will sense that lying is occurring. If they are rated higher than their performance deserves, they
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are very unlikely to complain. They are more likely to make note of the fact that their manager
is either too dumb to see their real performance or too dishonest to report it.

Utilitarian Analysis

Once again, utilitarianism defines the moral act as the one that produces the greatest good for
the greatest number of people. Appropriate compensation increases produce considerable
happiness for many of those who receive them. Some employees will undoubtedly feel that
they deserved a greater increase than they received but, on the whole, appropriate increases
will produce employee happiness. Such increases will also tend to keep employees reasonably
motivated and loyal to their employer. This is good for the organization as a whole.

From a utilitarian perspective, then, managers have an obligation to conduct performance

appraisals in a professional and reasonable way. In addition, they have the obligation to be
truthful on performance appraisals. This is where the pattern perspective comes in. It does not
create the greatest good for anyone if the performance appraisal system is permeated with lies.

Rights and Duties Perspective

This perspective says that the moral act is the one that recognizes the rights of others and the
duties those rights impose on the actor. The actor here is the manager, and the rights of
employees being evaluated, as well as other users of the performance appraisal system, are at
issue. Employees, as humans, have the right to be told the truth about their work performance
by their work supervisor. This right means that managers have a duty to tell employees the
truth on their performance appraisals. Since most performance appraisals forms include a
section called something like “areas needing improvement,” most performance appraisal
interviews will include some discussion that amounts to criticism of the current performance.
Thus, managers have a duty to tell employees all these things and to discuss not only what the
employee does well but also what the employee can do to improve his performance. That fact
that this is not an easy conversation to have does not mean that the manager is justified in
omitting it. From a pattern perspective, the manager has a duty, by his/her position, to obtain
good performance from those people that she manages, or to remove them if they cannot or
will not perform well. The only way that this can be done is one person at a time, and one
appraisal at a time. The manager who refuses to discuss or document negatives in performance
appraisals is almost certainly unable to maintain or improve performance of her unit. However,
the right of an employee is not to a certain amount of compensation increase (in a merit system)
but to be treated fairly in terms of the amount of increase.

Fairness and Justice Analysis

Under the fairness and justice perspective, the moral act is the one that treats similarly situated
people in similar ways regarding both process and outcome and with a sense of proportionality.
It does not say that everyone should be treated equally. To evaluate employees fairly means

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that their performance must be judged based on similar standards if they are similarly situated.
This is not always an easy task.

Fairness requires that similarly situated employees be evaluated on similar criteria.

Accomplishing this is a challenge for those who supervise service workers, but it is part of their
job. A more difficult question still is how to reward or compensate similarly situated employees
in similar ways. Part of deciding who is similarly situated involves setting up job descriptions.
This is typically the responsibility of the human resources department, with input from
supervisor or manager of the unit where the jobs are being evaluated.

Termination

Whether the source of a long-term employee’s deteriorating performance is known, suspected

or unknown, there remains a question of whether it is ethical to treat them differently from
anyone else in dealing with unsatisfactory job performance. If it is judged to be more important
to help and retain long-term employees than others, then the greatest good for the greatest
number might be achieved by making some extra effort to correct the situation when a long-
term employee’s performance deteriorates. Again, behaviour that results in immediate
termination is not under consideration here. If the employee can be brought back to their
previous satisfactory level of performance, the employee benefits by not losing their job, the
company benefits by retaining a good employee who is experienced and the only unhappiness
caused is to those affected during the employee’s period of unsatisfactory performance. Some
of this would be true of any employee and the aim of progressive discipline is to improve
performance and gain the benefits described here.

It is difficult to argue that an employee has a right to special treatment in a situation where
performance has deteriorated, simply because he has been employed by the same company for
a long time. If we take the system perspective, managers have a duty to see that their units
operate well and that their individual decisions support patterns of decision-making that are
favourable to the company. If it is a good thing to encourage good employees to stay with the
company by maintaining a pattern of treating long-term employees well, then individual
decisions are the only way to create and maintain this pattern.

Fairness and justice would ask first whether long-term employees are similarly situated with
other employees. If they are, the conclusion is clear: they are to be treated similarly. Although
institutional memory is critical and long-term employees tend to possess institutional memory,
the deterioration in their performance suggests that the organization cannot rely on them again.

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