THE ETHICAL

ORGANIZATION
 CHAPTER 3: THE ETHICAL
ORGANIZATION

• Characteristics
• Corporate Social Responsibility (CSR)
• Areas of Social Responsibility
• Corporate Moral Excellence
• Corporate Governance
• Development of Corporate Code
INTRODUCTION
• An ethical organization exhibits a number of key
characteristics, such as trust, integrity, values, openness
and transparency.
• These characteristics must be exhibited by
organizational leaders and drop down to the
organization's lowest-paid workers
• For an organization to maintain ethical standards, its
leaders must always demonstrate ethical practices,
which can be difficult when ethical decisions do not
ensure financial profit or gain.
• However, leaders who do make ethically responsible
decisions in these instances are more successful in
creating an ethical culture within the organization
CHARACTERISTICS OF AN ETHICAL
ORGANIZATION

TRUST CHARACTERISTICS OF VALUES

AN ETHICAL
ORGANIZATION
OPENNESS
INTEGRITY

OBJECTIVITY &
TRANSPARENCY FAIRNESS

EFFECTIVE
SHARING COMMUNICATION
COMPANY’S UPWARD &
WEALTH DOWNWARDS
TRUST
• Trust is a precondition for running any organisation. Trust
is needed both between internal stakeholders (managers
and employees) and between the organisation and its
external stakeholders (e.g. suppliers and customers).
• When trust relations break down it leads to alienation,
which can seriously undermine the sustainability and
reputation of an organisation.
• Unfortunately there is nothing that we can do to force
other persons to either trust us or our organisations. The
only thing that we can do is to enhance our
trustworthiness. By being trustworthy we make it easier
for others to trust us.
• Trusting and believing in the employees or subordinates,
making them feel worth it and adding to the project and
the company, showing of appreciation, i.e. praises and
acknowledgement.
Effective communication upwards &
downwards

• An organisation has to clearly communicate its ethics

expectations to all stakeholders.
• Also, the code of ethics has to be understood and
applied by every employee.
• able to communicate the company objectives, mission
and vision with all customers, clients and the
stakeholders.
 Openness

• refers to how freely persons or institutions make

information available to people who are affected by that
information.
• Consequently a lack of openness on the side of a
business and its leaders will be perceived as unfair or
immoral by its stakeholders, which in turn will undermine
(weaken) stakeholders’ perceptions of the trustworthiness
of a business.
• be open with your employees, no hidden agendas.
Objectivity and fairness

• The organisation must ensure that in their decisions and

actions they give consideration to the interests of all
stakeholders of the organisation.
• be object in your praises and critics with the employees.
Do not judge, but communicate.
 Integrity
• One is regarded having integrity when he/she consistently acts
in an ethical manner.
• One consequently can rely on a person of integrity because
you know that he or she is unlikely to deviate from their ethical
values.
• adheres to laws and regulations at the local, state and federal
levels
• treats their employees fairly, communicating with them honestly
and openly
• demonstrates fair dealings with customers and vendors
including competitive
• pricing, timely payments and the highest quality standards in
the manufacturing of its products.
• live up to the company’s values, beliefs in whatever they do.
• treats its employees fairly, communicating with them honestly
and openly.
Transparency

• implies openness, communication and accountability

• The organisation should disclose information in a
manner that enables stakeholders to make a meaningful
analysis of the organisation’s actions.
• be transparent by communicating less over email and
through third-party communication – and become more
personally engaged with their employees via face-to-face
and/or video interaction and with greater frequency.
• Be fair, justify, consistent and objective in anything the
company do. (eg: publish financial results publicly).
 Values

• Guiding standards of an organization that affirm what should

be practiced
• An ethical business has a core value statement that
describes its mission.
• Any business can create a value statement, but an ethical
business lives by it. It communicates this mission to every
employee within the structure and ensures that it is followed.
• The ethical business will institute a code of conduct that
supports its mission.
• This code of conduct is the guideline for each employee to
follow as he carries out the company's mission.
Sharing company’s wealth

• Community/Society: i.e. knowledge and or money

(Corporate Social Responsibility).
• Employee: cash compensation (e.g., lucrative sales
commission plan, profit-share plan), and sometimes that
comes in the form of equity or equity-linked incentives
(e.g., stock, options, warrants).
• Empowering others who helped the company become
successful or whom the company is benefiting from in
the business society, community, etc.
• After all, again, these employees are dedicating their
lives to making the companies so successful.
 CORPORATE SOCIAL RESPONSIBILITY
(CSR)

• Corporate Social Responsibility = is the continuous

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

• CSR is about how companies manage the business

processes to produce an overall positive impact on
society.

• E.g. case study “Johnson & Johnson and Tylenol” (refer article).
Top 20 Companies in Malaysia 2016

• AirAsia Berhad
• B.Braun Medical Industries Sdn. Bhd.
• Berjaya Corporation Berhad
• Hewlett-Packard Sdn. Bhd.
• IOI Corporation Berhad
• Malayan Banking Berhad (Maybank)
• Maxis Berhad
• Nestle (Malaysia) Berhad
• Petroliam Nasional Berhad (PETRONAS)
• Public Bank Berhad
Top 20 Companies in Malaysia 2016

• SapuraKencana Petroleum Berhad

• Shell Malaysia
• Sime Darby Berhad
• Sony EMCS Sdn. Bhd.
• Telekom Malaysia
• Tenaga Nasional Berhad
• UMW Holdings Berhad
• WD Media Sdn. Bhd.
• YTL Corporation Berhad
10 companies with best CSR
reputation

• http://www.forbes.com/pictures/efkk45mml
m/the-10-companies-with-the-best-csr-rep
utations/#
1e4ce4746241
AREAS OF SOCIAL RESPONSIBILITY

• In general, organizations may exercise social

responsibility towards the following 3 areas:-

Organization’s Social
Responsibility

General Social
Constituents
Welfare

Natural Environment
 CONT…

Organizational Constituents
- People and organizations directly affected by the practices of a
specific organizations and have a stake in its performance. Eg:
• state & federal government, creditors, customers, suppliers,
employees, interest groups, courts and investors.
• If the manager is caught doing criminal acts, it will result to hurt the
organization’s profit, stock prices, etc.
• Organizations that are socially responsible with employees, they treat
workers fairly, respect their dignity and basic human needs.
• To maintain a socially responsible stance towards investors, manager
should maintain proper accounting procedures, give appropriate
information to shareholders, and manage the company in a way to
protect shareholders’ rights and investment.
 CONT…

Organizational Natural Environment.

- Companies have to be more social responsible in their release
of pollutants. Eg.:
• Companies need to develop economically feasible ways to avoid
contributing to acid rain, depletion of ozone layer and global
warming.
• Find alternative methods of handling sewage, hazardous wastes
and garbage. (need to develop safety policies to reduce
accidents that will potentially disastrous environmental results)
• Contributions to charities, philanthropic organizations, not-for-
profit foundations/association, support for museums,
radio/television, involve in improving public health & education,
etc.
 CONT…

Organizational General Social Welfare.

- Business organizations should also promote the general
welfare of society. Some people believe that organizations
should act to correct, or at least not to contribute to political
inequalities.

*************************
Although there are arguments for and against the social
responsibility in organizations behavior, organizations that make
clear and visible contributions to society can achieve enhance
reputation and gain a greater market share for their products, and
increase profit itself.
CORPORATE MORAL EXCELLENCE

Corporate Moral Excellence = is the outstanding practices in

managing the organization and achieving results. It is mainly centers
on the corporate culture.

- It is the systematic use of quality management principles and tools

in business management, with the goal of improving performance
based on the principles of customer focus, stakeholder value, and
process management.

- Eg.: It can be found in company’s mission statement, and code of

ethics, etc.
 CORPORATE MORAL EXCELLENCE

They are many ways organizations can achieve corporate

moral excellence:-

Corporate Mission Total Quality Mgmt.

Statement (TQM)

Code of Ethics Organizational Culture

 CONT…

1) Corporate Mission Statement

• An organization’s mission consists of its long term vision
of what it seeks to achieve and reasons for its existence.
• Usually this mission of the organization is denoted through
its mission statement & it contains of how it wishes to
serve the society & contribute to social welfare.
• The mission statement has to be guided by a set of core
values that the organization strives to use in order to
achieve corporate moral in order excellence.
• It becomes the criterion by which the company measures
its activities & achievements.
 CONT…

2) Code of Ethics
A statement of the norms and beliefs of an organization. Norms are
the standards of behavior, expected from everyone in the
organization when confronted with a particular situation consisting of
ethical dilemmas.
3) Organizational Culture
In the organizational context, culture refers to the set of values,
dominant beliefs and guiding norms of behavior for its employees. It
denotes the climate, atmosphere, mental attitude shared by the
members of the organization.
4) Total Quality Mgmt (TQM)
A systematic approach to guide an organization towards excellence
through superior quality products, services & processes.
 CORPORATE GOVERNANCE

• Corporate Governance (CG) = is the system by which

the companies hold the balance between economic and
social goals, and between individual and communal goals.

• CG is a set of policies & procedures that the company’s

directors employ in their conduct of company’s affairs and
their relationship with shareholders to whom they are
responsible as managers.

• The aim is to align as nearly as possible the interests of

individuals, corporations and society.
 DEFINITION OF CORPORATE CODE

• “Corporate code of conduct" refers to

companies' policy statements that define
ethical standards for their conduct. There is a
great variance in the ways these statements
are drafted.
 CONT…

 Intended to serve the following purposes:

 To give every employee an insight into the Mission, Values and

Principles underlying the Company’s activities;
 To establish standards of ethical behavior which shall govern
relations within the Company and with customers, business
associates, suppliers, state authorities, the community and
competitors;
 To serve as a tool for preventing possible offences and conflict
situations, as well as developing a corporate culture based on
high ethical standards.

 By adopting the Code, the Company confirms its intention to

follow the highest ethical standards of business practice.
DEVELOPMENT OF CORPORATE CODE

Keep Your
Audience in Mind

Use the Code to Create

Make the Obligations
an Organizational
Personal
Compliance Roadmap

Obtain Board of Use Questions to

Directors and Senior Highlight Important
Management Buy-In Concepts
 CONT…

 Keep Your Audience in Mind

- Codes of conduct make the most impact if they are

effectively communicated to all members of the
organization.
- For this reason, a code should be written clearly. Use
simple and concise language, and avoid excessive
“legalese” so that every employee at every level
understands it.
- It should also be tailored to an organization’s industry,
culture and corporate values.
 CONT…

 Make the Obligations Personal

- Ideally, a code should be developed specifically for

your organization so that every employee at every level
feels a personal obligation to comply with it.
- Consider what elements would make it specific to
your organization, as well as what would differentiate it
from those developed by other organizations in your
industry.
 CONT…

 Use Questions to Highlight Important Concepts

- Consider using a question/answer format to explore

certain concepts and address specific situations that
employees are likely to encounter in their daily
professional pursuits.
- Questions can be incorporated throughout the code,
followed by corresponding answers that explore and develop
the relevant concepts.
- Providing information in this format not only will
make it more concrete, but also will make its guiding
principles easier to understand and remember.
 CONT…
 Obtain Board of Directors and Senior Management
Buy-In

- It is important to establish a commitment to ethical

conduct at all levels of an organization.
- When the code is developed, announce its existence to
the entire organization and make it publicly available on the
organization’s website.
- It should be clear that all levels of the organization,
including senior management and the organization’s board
of directors, will be governed by it, held to all of its standards
and that appropriate discipline will result at all levels for failure
to comply.
 CONT…

 Use the Code to Create an Organizational

Compliance Roadmap

- Beyond its direct application to your organization, a

code of conduct also can be used to lay the foundation
for the organization’s larger compliance efforts.
- Many organizations have implemented corporate
compliance programs using the elements outlined in
the U.S. Sentencing Commission Guidelines for
Organizations.
 CONT…

The guidelines highlight seven elements used to prove that an

organization has adopted a program to promote compliance.

(1) Written policies, procedures and standards of conduct;

(2) Designation of a compliance officer and a compliance
committee;
(3) Effective training and education;
(4) Effective lines of communication;
(5) Well-publicized disciplinary guidelines for enforcing standards;
(6) Internal auditing and monitoring processes; and
(7) Prompt responses to detected offenses and corrective action.
THANK
YOU