Chapter 5

The modes of ethics management

 Introduction
• A mode can be described as the preferred manner of an organisation to
manage its ethics.
• There are six types: amoral, survival, reactive, compliance, integrity, and
totally aligned.
• Rossouw and Van Vuuren (2003) developed a model for managing ethics
in organizations. The analysis that explains why business organizations
frequently switch from less complex to more complex modes (or
strategies) of managing ethics led to the development of the Modes of
Managing Morality Model.
 Amoral mode
• Nature: Ethics does not belong in business. Amoral managers simply do
not apply ethics to their methods of management. This might have
happened intentionally or unintentionally. "For instance, ethical managers
work to persuade their followers to uphold moral principles. However, the
amoral manager does not offer any ethical advice (Greenbaum, et al.,
2015, p. 31).
• Purpose: To free business from the unnecessary constraint of ethics.
• Management mode: Dismissing any reference to ethics as inappropriate in
business.
• Challenges: Scandals; bad reputation, etc.
 Survival mode
• Nature: Unethical conduct is good business and required to survive.
• Purpose: To maximise profit at all costs.
• Management mode: Condoning unethical behaviours and practices.
• Challenges: Financial penalties; isolation of stakeholders
 Reactive mode
• Nature: The reactive mode is triggered by the knowledge that action must be
taken in order to reduce the risk and consequences of unethical behavior.
• Purpose: To avoid the risk of litigation, boycotts, strikes and stakeholder
alienation by professing ethical standards. Organisations fear rejection from
their stakeholders therefore they protect themselves against the consequences
of unethical behavior
• Management mode: Ethical standards exist, but there is no enforcement.
Strategic planning sessions may be used by some organizations to develop a
number of corporate ethical values. Although these values represent a
dedication to honesty, decency, and organizational ethics, they might not have
the power to establish an ethical environment in which workers can function.
• Challenges: Credibility problems; fragile morale; scandals. Talking the talk but
not walking the walk can have serious credibility issues with stakeholders..
 Compliance mode
• Nature: Commitment to ethical behaviour. Organizations make a
commitment to managing their performance in terms of ethics and
ensuring that all of their employees adhere to their ethical standards. The
business takes corrective action when a violation of the code of ethics
occurs by punishing or reprimanding the offender.
• Purpose: To prevent unethical behaviour.
• Management mode: There is a clear and detailed code of ethics and
unethical behaviour is detected and penalised.
• Challenges: Mentality of ‘what is not forbidden is allowed’; undermining
of personal morality and responsibility; too many rules and policies.
 Integrity mode
• Nature: Promotion of responsible ethical behaviour.
• Purpose: To raise the level of ethical responsibility in the organisation.
• Management mode: Facilitating the internalisation of ethical standards in all
members of the organisation.
• Challenges: Discretion is abused; Some employees may not take part;
integrity may be undermined by powerful leaders.
 Totally aligned organisation
(TAO) mode
• Nature: Seamless integration of ethics into the identity, purpose and goals
of the organisation. Reinforce ethics as a component of the company's
culture and purpose for organizations that want to seamlessly integrate
ethics into their purpose, mission, and goals. Congruence between the
organization's mission, vision, and ethical principles is at the heart of TAO
strategy.
• Purpose: To reinforce ethics as part of the organisation’s identity and goals.
• Management mode: Strengthening the strategic importance of ethical
behaviour.
• Challenges: Ethical arrogance; ethics induction of new employees may be
neglected; lack of coordination in managing ethics.
 Class Activity
• Which mode will you use in your organisations?
Chapter 6
Classical ethical theories
 Virtue theory (Aristotle)
• Aristotle and other ancient Greeks developed the philosophy of virtue
ethics. It is the effort to understand and lead a morally upright life. This
character-based perspective on morality makes the belief that we learn
virtue through experience.
• According to virtue theory, our focus should be on the types of people (or
organizations) we should be and the ethical role models we should match,
rather than on the rules to follow.
• A virtue theorist (also known as a "virtue ethicist") would inquire about
the ethics of a particular behavior by determining whether the person
showing it is displaying the proper qualities or character traits.?
• The underlying assumption is that morality is both necessary and vital for
human beings.
• Virtues:
• Virtue is superior moral character. A quality or trait that is regarded
as morally right is called a virtue and is valued as the foundation of
morality. In other words, it is a morally high standard of conduct
that involves upholding the right and refraining from the wrong.
• A person’s rational ability is what distinguishes humans from other
living creatures.
• Moral virtues are rationally controlled characters that become
permanent traits of character.
• The way to develop character is through cultivation of these moral
virtues.
• The virtuous person:
• It is the responsibility, firstly, of the state and, secondly, of the
parents, to educate the youth so that they will be receptive to
the ideal of a virtuous life.
• Who is a virtuous person? Someone who has taken control of his
or her life, has cultivated his or her natural characters into moral
virtues, and has throughout his or her lifetime found pleasure in
acting in accordance to these virtues.
• The virtuous person demonstrates the joint excellence of reason
and character, in accordance with Aristotle's ethical theory. The
moral person is not only aware of the right thing to do, but also
emotionally invested in it.
 Deontological ethics (Kant)
• The morality of an action is based solely on the nature of the action regardless of
the consequences or any other factors. Decisions are made on what is in the best
interest.
• First, according to Kant, morality must be based on reason. He bases his morality
on science, which looks for overarching principles governing the universe. Similar
to that, morality will be a set of general laws that direct behavior. As we will see,
right action is ultimately a rational action in Kant's perspective.
• Deontological ethics holds that an action is morally good not because the result
of the action is good but rather because of some aspect of the action itself.
According to deontological ethics, at least some actions are morally required
regardless of how they will affect the welfare of people.
• Kant held that moral behavior must abide by general moral principles, such as:
"Don't lie. Never steal. Do not cheat”.
 Examples
• Despite its advantages, strict adherence to deontology can lead to
outcomes that many find unacceptable. If you're a software engineer,
for instance, and you learn that a nuclear missile that could start a
war is about to launch. It is against your professional code of ethics to
break into any software system without permission, even if you
manage to hack the network and stop the launch. Additionally, it is a
form of deceit and lying. Deontology advises against breaking this law.
However, thousands of people will perish because the missile was
allowed to launch.
 Example
• An example sometimes used is that of the Ten Commandments (i.e.,
“Honor your father and mother,” “Do not kill,” “Do not steal”). We can
easily point to deontology's influence in health care in regard to
promoting truth telling with patients. What should a clinician do
though if the truth might cause harm to the patient or others? A
commonly cited criticism in relation to the moral imperative of “truth
telling” or “do not lie” is the hypothetical scenario that you are hiding
someone from a murderer. The murderer comes to your home and
asks if the person, their intended victim, is there. A critique of Kantian
ethics is that the moral thing to do would be to tell the truth,
regardless of the consequences.
 What would Kant say about self defense?
• Kant advocates a strict morality that requires virtue to be widespread.
Stealing is unacceptable in any situation. Murder is wrong, even when
it's necessary for self-defense.
 Utilitarian ethics (Mill)
• Utilitarianism is a consequentialist moral theory that emphasizes efforts to maximize the overall
good. Consequentialism, as an ethical theory, is concerned only with the consequences of an
action.
• Applying a utilitarian framework for decision making entails an analysis with a goal to achieve
the greatest benefit for the greatest number of persons.
• The consequence or outcome of the decision determines the morality of the action. Examples
of utilitarian approaches include institutional requirements for vaccinations and reporting
communicable disease infections to public health authorities.
• The underlying assumption is that the morality of actions should be judged by their
consequences.
• Happiness:
• Each of us is ultimately motivated by a desire for happiness, whether it be through
knowledge, love, power or money.
• We have the ability to strive not only for our own happiness but also for that of society as a
whole, because we are social, have a natural inclination to sympathise, and fear rejection
and expulsion from the community if we ignore the interests of other people.
• Defence against critics
• Criticism 1: The theory is degrading to humans. Defence: It does not
put humans at the same level of animals, because while both
humans and animals enjoy bodily pleasures such as eating, drinking
and sleeping, humans also enjoy mental pleasures such as learning,
planning and caring.
• Criticism 2: Happiness cannot be the rational purpose of life.
Defence: Being noble and sacrificing one’s own happiness for the
sake of the general good does not contradict the utilitarian standard,
but actually enforces it.
• Criticism 3: Utilitarianism encourages selfishness. Defence: The
standard of happiness that utilitarianism pursues is not the happiness of
the individual, but the happiness of all.
• Criticism 4: Utilitarianism is unattainable. Defence: People would rarely
find themselves in a position where they had to act for the sake of the
general happiness of society. Mostly, they would need to consider only
the few around them who would be affected by their proposed actions.
• Criticism 5: Utilitarianism is self-serving. Defence: Expediency and
opportunism is incompatible with the utilitarian spirit. However, there
are exceptions and Mills believes this to be one of its strengths.
• Criticism 6: The theory is too time-consuming. Defence: With most
ethical issues, we know beforehand what is morally right or wrong, e.g.
it is wrong to lie, cheat, steal or kill. It is not a matter of working out
from scratch the balance of pleasure and pain in each scenario.
 Class exercise
VBS Bank
• In 2018, advocate Terry Motau released his report, titled The Great Bank
Heist, into fraud and corruption at the bank, compiled with Werksmans
Attorneys for the South African Reserve Bank which estimated that nearly
R2 billion was looted from the bank. More than 50 people are believed to
have benefit, and Motau recommended that criminal proceedings be
instituted. Executives for many years looted the organisation by among
others, creating fictional deposits and convincing municipalities to invest in
the bank, Motau said. Motau also found that KPMG audit partner Sipho
Malaba, had committed fraud in signing off on the banks 2017 financial
statements and on its regulatory reports to SARB. EFF leader Julius Malema,
and deputy leader Floyd Shivambu are believed to have benefited from the
bank through fraudulent home loans and payments from the bank.
 Class Exercise Cont.
• Choose one of the classical theories discussed and apply it to the case
study.
• What would that theory say about the VBS scandal?
 Chapter 7
Theories of the modern corporation
 Corporate Social Responsibility
Friedman's Theory of Corporate Social Responsibility
• According to the first formulation, a company's sole responsibility is to maximize its profits while
engaging in open and free competition without deception or fraud.
• According to the second formulation, business leaders must uphold the laws and the "ethical customs"
of society while also adhering to the wishes of shareholders, which are typically to maximize profits.
Profit maximization is not the same as profit maximization while abiding by the laws and ethical
standards of one's society. "Open and free competition without deception or fraud" is not the same as
profit maximization.
• “There is one and only one social responsibility of business—to use its resources and engage in
activities designed to improve its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition, without deception and fraud.” — Milton Friedman, Capitalism
and Freedom, 1962.
• Asserted by Friedman. It simply involves a company that has the foresight to act in its own best
interests. The exercise's goal is to boost the company's profits, not to engage in social responsibility.
Milton Friedman
 Corporate Social Responsibility cont.
Christopher Stone’s view
• The idea that managers have a moral duty to increase profits for the benefit of shareholders is
rejected by Stone (1992).
• He argues that the agency theory, which holds that managers are the agents of shareholders and,
in that capacity, they manage corporations on behalf of and for the benefit of shareholders, is the
foundation of Friedman's claim.
• However, Stone considers agency theory to be seriously flawed. He makes two arguments to back
up his position. First, shareholders and managers do not have a principal-agent agreement (an
arrangement in which one entity legally appoints another to act on its behalf). Rarely do
shareholders and managers meet to talk about their relationship. Instead, because they purchase
their shares from other shareholders through brokers, the majority of shareholders never have and
rarely seek out the opportunity to communicate with managers.
• Stone (1992:439) says in this regard that "the manager of the corporation, unlike the broker, was
never even offered a chance to refuse the shareholder's 'terms' (if they were that) to maximize the
shareholder's profits".
 Class exercise
• Friedman's view or Stone’s view?
Corporate social responsibility
 Corporate moral agency
Peter French:
• In his books, Peter French argued that businesses are legitimate moral agents. They can
and should accept moral responsibility for their actions, and the other actors should
hold them accountable, just like adult humans do. They can and should accept moral
responsibility for their actions, and the other actors should hold them accountable, just
like adult humans do.
• Corporations may be artificial legal persons, but that does not disqualify them from
being moral persons as well.
• When corporations choose specific courses of action, significant decisions are taken by
the board of directors with input from various individuals. As these acts are intended
by the corporation, the corporation becomes responsible and accountable for them.
 Stakeholder theory
• Edward Freeman: Corporations have responsibilities towards stakeholders
other than shareholders.
• Legal argument: Employees, suppliers, customers and local
communities have legally protected rights that have to be
respected by corporations.
• Economic argument: In pursuing their goals, corporations often
pollute the environment or disrupt communities. Corporations
therefore have to be regulated to prevent their imposing
extravagant costs on societies.
 Stakeholder theory
• According to stakeholder theory, everyone who is in any way impacted by an
organization or how it operates is a stakeholder, including staff members, clients,
vendors, local communities, environmental organizations, governmental
organizations, and more.
• According to the stakeholder theory, businesses should make an effort to treat all
of these stakeholders fairly because doing so will help them succeed in the long
run.
• According to stakeholder theory, every party with a stake in a project should have
their needs taken into account.
• Shareholder theory essentially translates to a "make more profit at all costs"
business strategy because shareholders are primarily focused on financial growth.
• Stakeholders: The following two principles provide the basis for stakeholder theory:
1. Principle of Corporate Rights: The corporation and its managers may not violate the
legitimate rights of others to determine their own future.
2. Principle of Corporate Effects: The corporation and its managers are responsible for the
effects of their actions on others.
Chapter 8
Ethics in business:
Dispelling the myths
 What is a Myth?
• A myth is a well-known tale/story/narrative that was created in the
past to explain natural occurrences/incidents/events to support
religious beliefs or social practices, or all the above.
• A myth is a symbolic story that typically has an unknown origin and is
at least partially traditional, apparently relating true occurrences and
is particularly connected to religious belief.
• Mythology are valued narratives that describe the universe and
human existence. They advise, uplift, comfort, and inspire. They
represent a culture's knowledge and help to transmit it to the
following generation (Losada, 2015).
 Myth 1: Dog eat dog
• Myth: The business environment is lonely and hostile; either you trample
on others, or others will trample on you. Being ethical is to the detriment of
your own interest. This phrase describes a highly competitive setting or
circumstance. People will go to whatever lengths to succeed in a society
where everything is "dog-eat-dog," even if that means hurting other people.
• Used to describe a situation in which people will do anything to be
successful, even if what they do harms other people
• Fact: Business always consists of a complex network of interpersonal and
inter-institutional relations. It is social in nature. Therefore, finding a sound
balance between concern for others’ interests and concern for your own is
essential to running a sustainable business.
 Myth 2: Survival of the fittest
• Myth: Business is a competitive struggle in which only the fittest will
survive. Being ethical will undermine your competitiveness and your
chances for survival.
• It suggests that the business or brand that fits or adapts to its
surroundings (its markets, its customers) the best will likely survive and
thrive. It implies that businesses or brands that are poorly suited to their
target markets and consumers will disappear.
• Fact: (1) competition does not exclude ethics, (2) ethics is a precondition
for ongoing competition, and (3) cooperation is as important as
competition.
 Myth 3: Nice guys/girls come second
• Myth: It is impossible to be both ethical and successful in business.
Either one is unethical and successful, or ethical and unsuccessful.
According to this myth, path to success cannot be accompanied by
consideration. It is a misconception because, given the importance of
maintaining a respectable reputation, cultivating business
relationships is a requirement for long-term success.
• Fact: Ethics is vital for cultivating dedication and creativity in people.
When there is high morale in a company, employees work harder and
are willing to make personal sacrifices to get the job done better. A
company that treats any of its stakeholder groups unethically runs
the risk of alienating them.
 Myth 4: Unethical conduct is not serious
• Myth: Although unethical conduct is wrong, it is not harmful to society.
According to this myth, unethical behavior is not serious—even though
it may not be right—so let's keep engaging in it. It is a misconception
because, over time, unethical behavior will have negative ripple
consequences that will hurt the organization and its stakeholders.
• Fact: Unethical conduct can lead not only to financial loss but also to
loss of life. It can also affect the company and economy detrimentally,
and result in lower productivity and lower profitability.
 Myth 5: When in Rome,
do as the Romans do
• Myth: If unethical behaviour is the norm in a specific context or
country, it simply has to be accepted that that is the way business is
done.
• Fact: When we start condoning unethical practices just because they
are widespread, we abandon our ability to make judgements about
what is acceptable and what is unacceptable. With the rapid
advancement of information and communication technology globally,
there is no place to hide and such business practices will be discovered
and condemned elsewhere in the world, to the extreme detriment of
the company involved.
 Myth 6: All that matters is
the bottom line
• Myth: Business is about one thing and one thing only, and that is profit.
As ethics is not primarily concerned with the bottom line, business
should not bother with ethics.
• Fact: To operate as a legitimate business, a company must be seen to
provide products or services that at a minimum are not harmful to
society. Ethics has a large impact on maintaining the intricate set of
relations with stakeholders; protecting and enhancing the reputation of
the business; and gaining the respect, dedication and creativity of
employees.