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Chapter 9

Ethics and Social Responsibility in Organizations

Case Study: IBM’s Ethical Supply Chains

Case study questions:

What was Thomas Watson’s initial dilemma in uniting the Computing-Tabulating-Recording Company?

Why did IBM stagnate in the early ‘90’s?

What is one tool that IBM uses to monitor the ethical decisions across their company and supplies?

What makes IBM very influential in the market regarding ethical supply chains?

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Ethics in Organizations

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Ethics: Moral principles

Two good reasons to study ethics:

It’s the right thing to do

It’s the smart thing to do

LO 9.1 Defend the importance of ethics in organizations and effectively evaluate and resolve ethical dilemmas

Ethics are moral principles of duty and virtue that prescribe how we should behave.

There are at least two good reasons to study ethics: Firstly, for reasons of virtue meaning, it’s the right thing to do. Most people have learned values and developed character that steer them toward making the right ethical decisions over the wrong ones.

Secondly, for reasons of prudence, meaning it’s the smart thing to do. Even for people who don’t care about doing the right thing, often making ethical decisions tends to be in their own self-interest.

Ethics in Organizations

An organization is unethical if it violates:

Basic rights of its employees

Ignores health, safety, and environmental standards

Current ethical debate: Artificial intelligence technology

Google’s ethics board for AI technology

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Company scandals have also made many people more aware and less tolerant of perceived unethical behavior. For example, footwear company Skechers was fined US$40 million for falsely claiming that its Shape-Ups shoes would tone legs and help burn calories.

Breaches of ethics happen all over the world; in many countries, corruption is prevalent, and instances of bribery to win business are commonplace. Similarly, some organizations exploit labor by hiring children, paying very low wages, and forcing employees to work in poor conditions.

One of the more recent ethical debates springs from the rapid development of artificial intelligence (AI) technology. With enhanced speech recognition available, robot dogs in development, “killer robots”, and solar-powered drones and self-driving cars on the horizon, the risks associated with AI have quickly come to the fore. Tesla Motors founder Elon Musk and the noted physicist Stephen Hawking are among those who have expressed concern about the ethical consequences of advanced technology.

Google, owner of several robotics companies, has set up an ethics board to ensure that AI technology is not exploited.

Ethics in Organizations

Ethical dilemmas: Not always a clear answer to moral questions

Example: Seeing your friend cheating on an exam

Ethical decision-making: Consistently choose to do the right thing

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Individuals and companies frequently face large and small ethical dilemmas or conflicts between two or more morally unpleasant alternatives.

Many decisions include some sort of ethical choice. For instance, what would you do if you saw a good friend in your class cheating on an exam? It’s tough to know the right decisions to make in certain circumstances. This is where ethical decision-making can be useful in guiding us to do the right thing.

The key to being an ethical person or organization is to consistently choose to do the right thing.

Ethical Decision-Making

Three classical ethical decision-making approaches

Utilitarian approach

Greater good for the majority

Rights approach

Respect for human dignity

Justice approach

Base decisions on fairness

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 9.2 Compare and contrast various approaches to ethical decision-making

Organizations often face ethical dilemmas in which they have to choose a certain course of action. There are three classical ethical decision-making approaches: utilitarian approach, rights approach, and justice approach.

The utilitarian approach focuses on taking action that results in the greater good for the majority of people.

The rights approach fosters decisions made on moral principles that infringe as little as possible on the entitlements of others.

The justice approach advocates basing decisions on fairness.

Ethical Decision-Making

Contemporary views of ethical decision-making:

Moral compass made up of four lenses

Is this action worthwhile?

Does this action comply with company principles?

What impact does this action have on others?

Had this action been approved by the right authority?

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Lynn Paine, ethics professor at Harvard proposed a four-part “moral compass” to help managers make ethical decisions

This involves factoring ethical considerations into every single part of organizational decisions. There are four types of lens through which managers can explore the moral dimensions of their own decisions.

Lens 1: Is this action worthwhile?

This first lens explores the end results of the action. Does it serve a worthy purpose? Will it have an ethically successful outcome? To answer these questions, managers need to gather data and arm themselves with as much information as possible to reach the right conclusion.

Lens 2: Does this action comply with company principles?

Most companies have a set of ethical standards, code of conduct, business norms, and values and ideals. Each action must be in line with the company’s ethical standards.

Lens 3: What impact does this action have on others?

This involves analyzing how other people, such as stakeholders, may be affected by the decision. Learning about their different perspectives, how they might feel about the action, and preparing compensation if necessary are all important ways to researching the decision before it is made.

Lens 4: Had this action been approved by the right authority?

There is little point in exploring the first three lenses unless the action has been signed off by the relevant authority (such as a senior manager or CEO). It is also essential to check that the organization itself has the right to take this action, as well as the necessary resources.

Ethical Decision-Making

Contemporary views of ethical decision-making (cont.):

Foursquare protocol made up of four elements:

Gathering all the facts

Reflecting on past experiences

Identifying the differences between the present and the past

Analyzing the situation

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

The Foursquare protocol is another contemporary ethical decision-making approach proposed by Catholic University law professor, Stephen Goldman.

Protocol Element 1: Gathering all the facts

Information is key to making the right ethical decisions. Goldman equates this first step to a doctor diagnosing a patient. In the same way, a doctor will gather information about a patient’s symptoms, managers must follow the same process in order to identify relevant facts.

Protocol Element 2: Reflecting on past experiences

Just as doctors use past experience to treat patients, managers should follow the same process. How did the organization react to a similar case in the past? What was the outcome? How did other managers deal with the situation? How certain situations were handled at the time, will influence the ethical culture going forward. For example, if sexual harassment has been tolerated in the past, it is likely there will be more cases in the future.

Protocol Element 3: Identifying the differences between the present and the past

It is important for managers to compare the similarities and differences between different cases in the past in order to come to a fair conclusion in the present. Just because one case was handled in a particular way before, doesn’t mean the same approach automatically follows for a similar case.

Protocol Element 4: Analyzing the situation

Once all the information has been gathered, three factors must be taken into consideration in order to reach the most ethical decision. Firstly, do you have any self-interest that might compromise your judgment? For example, you may turn a blind eye to one of your top sales person’s tendency to accept corporate gifts (although this goes against company policies), because his sales contribute to your annual bonus. Secondly, consider how you would feel if you were on the receiving end of the decision being made. For example, if your decision involves lay-offs, think about how you would feel if you were to be laid off. Third, listen to your own moral instincts, and ask yourself some honest questions. Is the right thing to do to overlook a high performer’s mis-steps? Or lay off people who have been with the company the longest?

Ethical Decision-Making

How individuals make ethical decisions:

Kohlberg’s Theory of Moral Development

Pre-conventional morality

Conventional morality

Post-conventional morality

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

According to American psychologist Lawrence Kohlberg (1927–1987), we go through several stages of moral development which influence our decision-making--an adaptation of a theory originally introduced by Swiss psychologist, Jean Piaget.

To illustrate these stages, Kohlberg carried out a famous experiment using a storytelling technique. One of the stories involved a man called Heinz whose wife was dying of cancer.

The results of these interviews formed the basis of Kohlberg’s theory.

There are three main stages of moral development: pre-conventional morality, conventional morality, and post-conventional morality.

1. Pre-conventional morality

This stage applies to very young children whose morality tends to be based on obedience, self-protection, and self-interest.

2. Conventional morality

During the second stage (adolescence and early adulthood), moral decisions are based on standards set by adult role models and societal norms. Those people who abide by these conventions are more likely to be accepted by society than those who do not.

3. Post-conventional morality

In the final stage of moral development (mature adults), individual judgment is based on a chosen belief system, which shapes moral views.

Ethical Decision-Making

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Ethical Decision-Making

Josephson Institute established CHARACTER COUNTS! Program

Six Pillars of Character

Trustworthiness

Respect

Responsibility

Fairness

Caring

Citizenship

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

The Josephson Institute was founded in 1987 with a mission to change personal and organizational decision-making and improve ethics and character development in society. CHARACTER COUNTS! is a program established by the institute to promote and teach the Six Pillars of Character it believes define ethical behavior.

Today, this program is the most widely used approach to character education in the United States, reaching millions of young people through thousands of affiliated schools, agencies, and organizations.

The Six Pillars of Character are not based on political, religious, or cultural leanings in making ethical decisions. The six pillars are:

Trustworthiness. Be trustworthy and willing to build trust with others. Honesty, sincerity, and loyalty are core qualities necessary for ethical behavior.

Respect. Treat others with courtesy, appreciation, and tolerance. Avoid judging others and using aggressive language.

Responsibility. Work hard, and be conscious of the way you behave and communicate toward others. Practice self-awareness and always strive toward self-improvement.

Fairness. Be impartial and make decisions based on sound knowledge. Follow the rules but question injustices when they arise.

Caring. Exercise forgiveness, compassion, gratitude, and kindness in relationships with others.

Citizenship. Be sure to vote and play your part in improving the lives of the people in your community. Be kind to the environment and make time to volunteer in social enterprises.

The Six Pillars of Character offer a framework of commonly held ethical values that may be useful in discussing ethical issues and making ethical decisions in the workplace.

Ethical Leadership and Followership

Ethical challenges interfere with leader/follower relationships:

Leaders and power

Some leaders misuse power to gain influence over followers

Leaders and privilege

More power a leader possesses, more privilege they have

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

LO 9.3 Differentiate between the challenges of ethical leadership and ethical followership

With leadership comes greater influence and power. Some leaders misuse that power to exert their influence over their followers. This sort of abuse can come in the form of bullying, verbal or physical abuse, and sexual harassment.

Studies carried out by social scientists show the dangerous effects of power on the behavior of ordinary people. They found that when certain people are put in a powerful position, they tend to lack empathy, are less able to detect emotion, and fail to understand other perspectives.

The more power a leader possesses, the greater the privilege. Typically, top CEOs are paid enormous amounts which some use to fund lavish lifestyles. This growing gap between the wealthiest and the poorest raises some interesting ethical questions. Some CEOs are already recognizing this massive disparity and making an effort to put it right. For example, Hamdi Ulukaya, founder and CEO of Chobani--a yoghurt-making company has pledged to award 2,000 employees with a 10% stake in the company.

Ethical Leadership and Followership

Leaders and responsibility

CEOs being held to higher levels of accountability

Leaders and information management

Leaders have more access to info than followers

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

While some CEOs enjoy considerable perks and wealthy lifestyles, they also have huge amount of responsibility. In fact, due to the numerous instances of fraud and unethical conduct over the past few years, CEOs are being held to higher levels of accountability than ever before. Unethical behavior such as bribery, fraud, insider trading, environmental disasters, and sexual harassment no longer goes unnoticed or unpunished. If leaders want to be considered reputable, credible, and trustworthy, they need to be transparent with their followers about the tasks and duties they are undertaking; make an effort to actively prevent crimes and injustices; take immediate action to correct ethical problems; accept accountability for decisions and actions; and maintain the same standards as their followers.

By the very nature of their senior positions, leaders tend to have more access to information than followers and are often the first to receive that information. The challenge for leaders is how to deal with that information. Do they share it immediately with followers or keep it to themselves? Leaders who fail to meet the ethical challenges of information management often behave in the following ways: lying about what they know, using the information for their own gain, denying having the knowledge at all, and telling certain followers to withhold information when others have a right to know.

It’s human nature to prefer some people over others, and in an ideal world, leaders and followers would treat each other equally and respectfully. Treating some followers more favorably than others has a tendency to breed resentment and lower morale and productivity. It also stunts creativity. Leaders need to be consistent in their behavior toward their followers by learning how to cater for each individual’s needs; choosing an appropriate time to bend the rules; and how to treat those followers that may not be as competent as others. They must also offer equal opportunities when it comes to promotions and bonuses and treat everybody around them with respect.

Ethical Leadership and Followership

Leaders and consistency

Leaders should treat everyone with respect and avoid favoritism

Leaders and loyalty

Leaders should act in best interests of their followers

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Ideally, all leaders would act in the best interests of their followers and prioritizing the environment over financial gain, but as recent scandals have demonstrated, this is often not the case.

Ethical Challenges of Followers

Followers and obligation

Follower should have a strong alliance to organization, leaders, and so on.

Followers and obedience

Followers should carry out demands to further organizational mission

Followers and cynicism

Easy for followers to become cynical

Neck, Organizational Behavior, 2e. © SAGE Publishing, 2020.

Good followers have a strong allegiance and commitment to their organizations, leaders, customers, and shareholders. However, followers also need to determine the extent of their obligation to a company. Followers need to assess the degree of their own obligation to their companies and think about how much they want to give in order to strike the right work-life balance.

In the business world, followers are expected to carry out orders and demands in order to further the mission of the organization. However, there is a difference between carrying out orders and blind obedience. When faced with unethical situations, followers must ask themselves if obedience might lead to unethical behavior, dangerous consequences, or damage to the organization’s mission.

In times of economic turbulence, rising lay-offs, corporate scandals, and continued austerity measures, it is easy for employees to become cynical. Too much cynicism can lead to lack of trust, lower commitment levels, reduced job satisfaction, and decreased performance and productivity. Yet, cynicism does have its place when it comes to questioning ethical decisions made by leaders. Looking at organization with a cynical lens can be beneficial for organizations if employees hold them accountable for their actions.

Ethical Challenges of Followers

Followers and dissent

Followers should be given an opportunity to express dissent

Followers and bad news

Followers should have a forum for bad news

For organizations to be successful, employees need to be given the opportunity to express their dissent regarding organizational practices and to raise questions about unethical practices. However, not all organizations encourage dissent and not all followers feel comfortable expressing it. When followers decide to express their dissent, they need to choose the right person to help solve the problem, suggest solutions to the issue, think about what they might say if their opinions are dismissed, and plan the steps they may have to take if they still want to be heard (such as escalating the problem to higher management). If the situation does not improve then followers may threaten to resign. However, resignation should really only be a last resort and only warranted if raised concerns have been repeatedly ignored by leaders over a lengthy period of time.

Organizations that don’t provide a forum for sharing bad news can suffer catastrophic consequences. Followers must be given the freedom to report bad news to their leaders, so those leaders can take corrective steps to address the problem before it gets out of hand. Delivering bad news takes courage and if possible better communicated face-to-face to the most appropriate person, rather than over e-mail or phone.

Social Responsibility

Corporate Social Responsibility (CSR)

2015 Neilson Survey found two third of consumers would pay more for sustainable products

Four main levels of CSR:

Economic

Legal

Ethical

Discretionary

LO 9.4 Describe the primary approaches to social responsibility in organizations

One way organizations can behave ethically and responsibly is through practicing corporate social responsibility (CSR) defined as a business approach that delivers economic, social, and environmental benefits to stakeholders in order to contribute to sustainable development.

In a 2015 Neilson survey, almost two thirds of consumers said that they would pay more for sustainable products.

http://www.nielsen.com/us/en/insights/reports/2015/the-sustainability-imperative.html?afflt=ntrt15340001&afflt_uid=GMhUXXsH-8M.4uFP4cNEorg8kUE0PIHeB7YsM-iP8TTn&afflt_uid_2=AFFLT_ID_2

There are four main levels of CSR: economic responsibility, legal responsibility, ethical responsibility, and discretionary responsibility:

1. Economic Responsibility

To enable an organization to become socially responsible in the first place requires that organization to be economically and financially sound. This means that its services and products must be sold at a reasonable price, and the business run as efficiently as possible.

2. Legal Responsibility

In addition to ensuring that a company is profitable, every effort must be made to comply with legal requirements. Types of legal responsibility include labor law, tax regulations, environmental law, and criminal law. Alongside these laws is the expectation that organizations conduct their business affairs in a sound and fair manner.

3. Ethical Responsibility

Once organizations are adhering to their economic and legal responsibilities, then they can turn their attention to ethical responsibilities. Being ethically responsible means being morally aware to enough to do the right thing in relation to the environment, fair wages, or who the company does business with.

4. Discretionary Responsibility

When an organization achieves its economic, legal, and ethical responsibilities, it can begin to focus on its discretionary or philanthropic responsibilities. These responsibilities involve going beyond the call of duty to benefit society.

Social Responsibility

Social Entrepreneurs and CSR

Traditional Entrepreneurs Versus Social Entrepreneurs:

Both found organizations, identify new opportunities, and create innovative products and services

Traditional ’s beginning goal is to make profit; Social’s beginning goal is to tackle social and environmental problems to bring social change.

While corporates tend to cycle through the various levels of responsibilities before being considered socially responsible, social entrepreneurs entrench CSR into their startup business model.

While there are similarities between traditional entrepreneurs and social entrepreneurs, there are differences too. For instance, although both traditional and social entrepreneurs found organizations, identify new opportunities, and create innovative products and services, they may differ in their original goals and objectives. Traditional entrepreneurs tend to start off with making profit as a goal, whereas a social entrepreneur may start off with the intention of tackling social and environmental problems to bring about social change.

Building Ethical and Socially Responsible Organizations

Organizational components of ethical culture include:

Core values

Mission statements

Code of ethics

Structure

Boards of directors

Reward and performance evaluation systems

Reporting and communication systems

Ethics officers

LO 9.5 Identify the components of an ethical culture

Regardless of the different types of organizations, building an ethical culture requires a shared sense of meaning to help positively influence ethical behavior. Some components of ethical behavior include core values, mission statements, codes of ethics, structure, boards of directors, reward and performance evaluation systems, reporting and communication systems, and ethics officers.

Core values are deeply held beliefs or guiding principles shared by everyone working at a particular company. They are the essence of a company’s identity help to support a company’s vision. Common core values include integrity, honesty, perseverance, and accountability.

Mission statements communicate the company’s purpose as reflected by its members. It is essential that mission statements are continually reinforced to ensure every employee adheres to the message.

Codes of ethics (sometimes called code of conduct) are a written set of guidelines that define acceptable and unacceptable behavior. The main purpose of a code of ethics is to help employees make the right choices when confronted with difficult situations. For a code of ethics to be successful, it must be supported by senior management who should lead by example by behaving ethically at all times, and acknowledging or rewarding those employees who follow the same code. Equally, leaders must also reprimand employees who break the ethical code.

Organizational structure also influences ethical behavior. For example, a command and control structure where leaders have a high amount of power and followers are expected to obey sometimes inspires unethical behavior.

Boards of Directors sit at the head of the organizational structure and are responsible for overseeing top management and ensuring loyalty to shareholders.

Ethics hotlines allow employees to report unethical conduct anonymously without fear of retaliation. Many organizations use ethics hotlines to provide employees, who may not be comfortable reporting ethical incidents to management, with a safe place to share their concerns.

Ethics officers are responsible for ensuring their organizations adhere to legal and ethical practices. Expanding organizations in particular can create challenges with respect to new employees and new regulations.

Building Ethical and Socially Responsible Organizations

Successful ethical training programs have four components:

Trainee characteristics

Needs assessment

Training transfer

Evaluation

One important way to prevent unethical behavior from occurring in organizations is to ensure all employees receive ethics training. According to management research, there are four components of successful ethical training programs: (1) trainee characteristics, (2) needs assessment, (3) training transfer, and (4) evaluation (see Figure 9.2).

1. Trainee Characteristics

Before designing an ethics training program, successful facilitators assess the characteristics of their trainees. This may involve documenting their moral profiles, their levels of integrity, their capabilities to be honest with themselves and others; and if there is any evidence of a predisposition toward unethical behavior. Other areas to assess would be the levels of assertiveness, intelligence, and general demographic (age, gender, ethnicity) of the audience.

2. Needs Assessment

Following an appraisal of the trainee characteristics, facilitators can carry out a needs assessment to establish the requirement for ethics training. Information gathered from employee surveys, advisory committees, exit interviews, and group discussions can be useful when planning an ethics training program. It is also important to plan a statement to give at the beginning of a session outlining the code of conduct, standards of excellence, behavioral expectations, and the overall goals of the program.

3. Training Transfer

A successful ethics training program transfers the knowledge gained during the program to trainees, so that they will remember to apply that behavior when they return to their working roles. To engage trainees from the outset, facilitators should provide them with a pre-training pack which introduces them to the topics being explored.

Evaluation

It is important that evaluation takes place after the training session in order to measure its effectiveness. As part of this evaluation, facilitators should note the reactions of the trainees and analyze the knowledge or skill tests completed by trainees.

Building Ethical and Socially Responsible Organizations