Formal cultural system

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BUSM 3199/3115/4198 Ethics & Governance Lecture 4: Creating an Ethical Organisation

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Today

So what are we are saying is:

B = f (P & E)

BEHAVIOUR

ENVIRONMENT

PERSON

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Outline

The work context

Organisational culture

Ethical formal and informal cultural systems

Ethics codes

Ethical leadership

The relationship between leadership, culture, ethics codes and behaviour

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Learning objectives for today

Know the characteristics of an ethical organization

Discuss the difference between ethics of value and ethics of compliance

Understand the ethical formal and informal cultural systems

Discuss a code of ethics

Discuss ethical leadership

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An Ethical Organisation

Trust

Effective communication

Openness

Objectivity and fairness

Integrity

Transparency

Values

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The organisation as a context

individual personality is unimportant in organisational criminal behaviour, as it results from role fulfilling rather than individual pathology (Schrager & Short 1978)

a reliable picture of moral conduct can be ascertained “not so much in direct observation of the decision maker as in a firmer grasp of the decision maker’s environment” (Frederick 1992)

Bad apples and bad barrels: Most people are the product of the context they find themselves. They look up and around… (Trevino and Brown 2004)

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Organisational membership

Persons in organisations are socialised in their roles (Katz and Kahn 1978).

Through this process, people accept the organisational goal structure and the culture (Clinard & Yeager 1980).

The expected role behaviour is learned from others’ expectations and the rewards that they receive from their organisational membership.

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Ethics of Values? or Ethics of Compliance?

Values approach - is proactive and inspirational; emphasises expected behaviour, high standards

Compliance approach - is reactive and punitive; emphasises required behaviour, obeying the law

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Organisational culture

Organisational culture affects people in organisations

The organisational culture includes the basic assumptions concerning what is right, proper and fair (Gottlieb & Sanzgiri 1996).

Expresses shared assumptions, values and beliefs and is the social glue that holds the organization together. It’s “how we do things around here.” (Trevino & Nelson 2006)

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Ethical formal cultural systems

Leadership: creates, maintains and changes culture. Most important aspect of an organisation’s ethical culture

Selection and reward systems

Structure - authority, responsibility and ethical culture

Policies and codes- their effectiveness depends on other formal and informal systems. Ethics must be in the blood line of the organisation.

Orientation and training programs.

Decision making processes assumptions and scripts

(Trevino & Nelson 2006)

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Reward systems

Reward systems can encourage unethical behavior

People do what’s rewarded

Rewards don’t have to be explicit

Think about how attempts to motivate can backfire

Set goals for ethical conduct

(Trevino & Nelson 2006)

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Ethics Codes

Have been around since the early 1900s

An international movement towards business ethics codes began in 1980s

Post-Enron, stock exchanges such as NYSE and ASX encouraged the adoption of formal ethics guidelines for company officers.

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Formulating a code of ethics

A code of ethics is, in essence, a formalisation of moral principles and responsibilities

The need for a code of ethics

Requirement by law, e.g. in U.S.

Safeguarding reputation

Improving customer service (and thus sales)

Seeking like-minded partners and suppliers

Attracting and retaining the best employees

Responding to internal and/or external pressure

A code of ethics should be organisation-specific. E.g. Religious body vs commercial company; small vs large company

Codes are guidelines, not laws. Spirit of following the code is more important than the form. E.g. A waiter greeting with sincerity vs merely following what is required

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Approaches to Ethics

General principles

Corporate mission

Code of conduct

Specific policies

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1. General Principles

Examples: Singtel, GIC

Ensure that our employees uphold the code of ethics with integrity.

But details of the principles unavailable publicly

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2. Mission

Example: Marketing Institute of Singapore

“Uphold the good name of Marketing Institute of Singapore and Singapore, Academic Standards and Student Welfare”

http://www.mis.org.sg/about/ethics.aspx

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3 & 4. Code of Conduct, Specific Policies

Example: FJ Benjamin

Personal responsibility of each director and employee to understand and comply with the code of conduct

On entertainment, while it is an acceptable form of business, directors or employees should turn down meals or entertainment which are excessive in nature or frequency, so as to avoid loss of objectivity when conducting the company’s business

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Ethics codes effectiveness

Code effectiveness depends on cultural values and communication

Use collaboration to create/revise the code

Discuss/debate code frequently

Use code to resolve ethical issues

Communicate ethical decisions

Reward behaviour that is consistent with the code

(Stevens 2008)

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Six Steps for Effective Implementation of a Code of Ethics

Distribute the code of ethics comprehensively to employees

Assist employees in interpreting and understanding the application and intent of the code

Specify management’s role in the implementation of the code

Inform employees of their responsibility to understand the code and provide them with the overall objective of the code

Establish grievance procedures

Provide a conclusion or closing statement, such as one from Cadbury Company: “The character of the company is collectively in our hands. Pride in what we do is important, and let us earn that pride by the way we put the beliefs set out here into action.”

Ethical informal cultural systems

Informal cultural systems

Informal norms

Heroes and role models

Rituals

Myths and stories

Language

Developing and changing the ethical culture

(Trevino & Nelson 2006)

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Org. Culture and Leadership

Leaders affect culture through:

attention

critical incidents and crises

role modeling / teaching / coaching

criteria for scarce resources, rewards, status, recruitment, selection, promotion, retirement, excommunication

others: formal statements, structure, systems, processes, physical setting, rituals, stories, etc.

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The responsibility of managers

Managers have responsibility for ethical behaviour in organisations because they affect culture, policies and practices

Begin with clear standards

Design a plan to continually communicate your standards

Managers are role models

(Trevino & Nelson 2006)

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moral manager

Reputation for

Ethical

Leadership

=

Having a good character

Setting ethical

standards,

expectations etc.

(Trevino & Brown, 2004)

Ethical leadership

Moral person

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Traits

Behaviours

Decision making

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moral person

Integrity

Trustworthiness

Honesty

Do the right thing

Concern for people

Being open

Personal morality

Hold to values

Objective/fair

Concern for society

Follow ethical decision rules

Trevino, Hartman & Brown, 2000

moral manager

Role modelling through visible action

Rewards and discipline

Communicating about ethics and values

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Executive Ethical Leadership Reputation Matrix

Hypocritical leader

Ethical leader

Unethical leader

Strong

Weak

Moral Manager

Weak

Strong

Moral Person

Ethically silent leaders

(Trevino & Brown, 2004)

Weak in ethics as a person, weak in ethics as a manager = Unethical leader

Weak person, strong manager = Hypocritical leader

Strong person, weak manager = Silent leader

Strong person, strong manager = Ethical leader

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Guidelines for effective ethics management

Understand existing ethics culture

Communicate importance of ethical standards

Focus on reward systems

Promote ethical leadership in the organisation

(Trevino & Brown, 2004)

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Conclusions

An ethical organization requires ethical leadership – people look up and around

An ethical leader is a strong moral person and strong moral manager

A code of ethics is a guideline. For it to have meaning within an organisation it has to be part of the culture.

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Case Study Codes of Ethics Creative Technology & FJ Benjamin

Read the Creative & FJ Benjamin Code of Business Conduct and Ethics and consider:

a) what are the ethical principles underlying these codes? – is it a values based approach or a compliance based approach?

2. Do you think these codes would be effective? Consider Stevens (2008) - reading for Week Four.

3. Are there ways in which the codes implementation should be supported?

4. What else would you do as a manager to make an organisation ethical?

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Review Question

1. What is the role and content of an ethics code in an organisation?

2. Explain when and why codes of ethics are ineffective and discuss the arguments presented by Stevens (2008) and Trevino and Brown (2004).

3. Outline the differences between a hypocritical and an ethically silent leader (Trevino and Brown 2004). What are the likely outcomes of having either of those leaders in an organisation?

4. What can organisations do to improve the ethical behaviour of their employees? Give examples.

5. Is unethical behaviour in business the result of ‘bad apples’? Discuss in relation to organisational culture (‘a bad barrel’).

To provide clear guidelines to help with decision making on issues that might be of ethical nature.

Context – “Bad apple or bad barrel?

Most people if led/influenced to unethical behaviour will do it, therefore, the need to lead people to ethical behaviour.

Employees must see that formal policies go beyond window dressing – “walk the talk”

Has to be talked about day in day out

3. Hypocritical – “talk but not walk”. Silent – says nothing/does nothing. Inconsistent behaviours, dependent on the individual and easily swayed to be unethical.

4. Set ethical standards; role model ethical conduct; use rewards and punishment to reinforce ethical behaviour – hold people accoutable; let people know what is expected; training; use of media; use of case studies; manager kits

5. The influence of culture on behaviour – what it takes to succeed around here, what people see rewarded. What does it take to go against the dominant culture? Example Enron.

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References

Clinard, MB, & Yeager, P. C. 1980, Corporate crime, The Free Press, New York.

Frederick, NL 1992, 'Ethics and Integrity - Beyond Internal Controls', Managerial Auditing Journal, vol. 7, no. 1.

Gottlieb, JZ & Sanzgiri, J 1996, 'Towards an ethical decision making in organizations', Journal of Business Ethics, vol. 15, pp. 1275-85.

Katz, D, & Kahn, R. L. 1978, The social psychology of organizations, 2 edn, Wiley, New York.

Schrager, L & Short, J 1978, 'Toward a Sociology of Organizational Crime', Social Problems, vol. 25, pp. 407-19.

Stevens, B 2008, 'Corporate ethical codes: Effective instruments for influencing behavior', Journal of Business Ethics, vol. 78, pp. 601-9.

Treviño, LK & Brown, M 2004, 'Managing to be ethical: Debunking five business ethics myths.' Academy of Management Executive, vol. 18, no. 2, pp. 69-81.

Trevino, LK, Hartman, L.P., & Brown, M 2000, 'Moral person and moral manager: How executives develop a reputation for ethical leadership', California Management Review, vol. 42, no. 4, pp. 128-42.

Trevino, LK, & Nelson, K. A. 2006, Managing business ethics: Straight talk about how to do it right, 4 edn, John Wiley & Sons, New York.

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Online References

Jeff Skilling – ENRON

http://www.youtube.com/watch?v=XFTihsjO-og

Some background to Tyco: Former CEO Denis Kozlowski

http://www.youtube.com/watch?v=MYmLaVYsyHw

Milgram Experiment

http://www.youtube.com/watch?v=BcvSNg0HZwk

Stanford Prison Experiment

http://www.youtube.com/watch?v=Z0jYx8nwjFQ

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Next Week

Corporate Social Responsibility