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ORGLectureWeek4.pptxLecture Overview – Week 4
Introduce business ethics and explore various types of ethical issues
Define business ethics and discuss how businesses should manage ethical issues
Provide examples of ethical breakdowns
Explore the role of management
Discuss how businesses can integrate ethics into organisational culture
Last Week
Defined stake and stakeholder
Identify various types of stakeholders
Explored the evolution of stakeholder theory
Identify the essence of effective stakeholder management
Understand stakeholder management as a critical feature of the managerial role
Critical to group assignment
What is business ethics?
Macquarie dictionary defines ethics as “…a system of moral principles by which human actions and proposals may be judged right or wrong”.
KPMG (2005) “ In a business context, ethics (or the lack of them) influence corporate behaviour. In the popular mind ethics are inextricably linked to notions of honesty, integrity, trust, accountability, transparency and social responsibility”. http :// www.kpmg.com.au/aci/docs/rassas_view-from-the-top200510.pdf
Ultimately standards are set by society in the belief that business has ethical and social dimensions that transcend mere commercial considerations
Resurgent interest in business ethics
Spurred by headline grabbing scandals of the last decade often involving:
large multinational companies (with large public profiles) ;
Executive management e.g. CEOs & CFO’s.
Apparent focus on profit
Can you think of any recent global scandals in the media?
Banking Royal Commission (2018-19)
BP Oil Spill (Gulf of Mexico 2010)
BHP-Billiton Mine Disaster (Brazil 2016)
Lehman Brothers Investment Bank (USA 2008)
Panama Papers (Global 2015)
Volkswagen Emissions scandal (Ongoing)
BP – Biggest Enviro disaster in history (impacts largely unknown. Largest corporate payout in history)
BHP-Billion (Samarco Mines) – Biggest Enviro disaster in Brazils history
Lehman Bros – Biggest bankruptcy case in history - sparked the GFC
Panama Papers – leaked document that showed how wealthy company's hide their earnings in foreign bank accounts to avoid tax
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Resurgent interest in business ethics…continued…
Concerns highlighted by the aftermath of the Wall Street financial scandals known as the Global Financial Crisis (involving mainly companies) but also sometimes governments e.g. sovereign debt risk – Greece being bailed out by EU
This confirms that corporate ethics have broader implications than just to shareholders
Important to consider government, the environment and broader society
Challenges traditional notion of business ethics
Responsibilities are now broader and more complex
Types of ethical issues
C & B raise several ethical issues that have emerged:
Doing business with countries with inhumane policies
e.g. child labour, unsafe working conditions
Doing business with countries who are diplomatically and politically in tension with the foreign policy of the home country
E.g. Ripcurls production of jackets being outsourced to North Korea (links to slave labour)
Demonstrates increasing responsibility not only for your stakeholders actions, but also for the possible actions of your stakeholders stakeholders!
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Public perspective on business ethics?
75% of US citizens interviewed (Marist College Institute for Public Opinion, 2009) and 58% of business executives reported a view that the moral compass of corporate America is pointing in the wrong direction (C & B 2015)
KPMG (2005) reported similarly that around two thirds of Australians perceive business leaders as untrustworthy
C & B (p.186) question if business ethics are deteriorating, or whether the press is reporting more?
The US Sec. of Treasury Blumenthal suggests
“People in business have not suddenly become immoral. What has changed are the contexts in which corporate decisions are made, the demands that are being made on business, and the nature of what is considered proper corporate conduct”.
Do Blumenthal’s comments provide insight into society’s changing expectations regarding business behaviour and operations?
Business ethics: meaning, type and approaches.
Descriptive ethics…”What type of moral behaviour is occurring in a given social unit e.g. a business organisation?
Normative ethics…”what should be happening?” Concerned with justifying a moral system.
3 major approaches to business ethics
Conventional – based on ordinary common sense
e.g. how does a decision or practice align with social values. Often in tension e.g. media portrayal of acceptable sexual behaviour and workplace codes of conduct
Principles approach- based on guidelines or principles to direct behaviour-
law reflects society’s codified ethics.
Often in tension – for example Enron missing the main point of securities law - .i.e. don’t keep stock afloat to make money at ultimate expense of shareholders
Using ethical tests- decision or practice considered against prevailing norms, but always made on the basis of personal value judgements.
Grey area - requires acknowledging and ranking different values…is a danger of picking values that best suit our own purposes . Made complex by varying cultural standards.
E.g. Free speech vs. anti-vilification laws
Ethics, economics and law
Venn diagram figure 7.6 (Next Slide) demonstrates the sweet spot where they all overlap
However, an interesting issue is raised…is ethical and legal overlap concerning business activity sufficient to take action.
Is it not also ethical to meet the needs of all stakeholders including shareholders? (by making a profit)
But what about the interesting issue of time span… long term versus short term interests?
How do these considerations shed light on an ethical stakeholder culture?
Question sets to deal with ethics in business.
In complex environments, asking questions is much easier than stating hard and fast rules to appreciate the “big picture perspective” around ethics. For example:
What is going on in the mix between your ethics, your organization’s ethics, your industry or professional ethics, society’s ethics and global ethics. (see figure on next slide)
What ought to be? How do we situate this within the Venn model of overlapping responsibilities?
For example, what are the issues around managing our supply chain? This is the world of the modern manager… decision making in complexity.
Moving towards what ought to be? Organisations need the conversations to set benchmarks and determine what is achievable. Develop a road map towards achieving a vision…
Be honest about motivation? Be authentic/transparent. Very different to being manipulative and/or trying to distort the truth.
Factors Affecting the Morality of Managers
Models of Management Ethics (C&B 2015 p.199)
Immoral management is seen as devoid of ethical principles or precepts.
Totally focussed on self-interest , no care about others interests.
Only concern with illegal action is penalties.
e.g. Enron
Moral management exhibits a concern for fairness, justice, respect for rights.
Legality seen as a minimal standard.
Ethics drive organisational strategy demonstrating, espoused transparent and well communicated values.
Focus on creating value for the community rather than profit maximisation as a driver?
Amoral management
Intentional. Believe different rules apply in business.
Unintentional. Careless and lack ethical perception and awareness.
Is the unintentional Amoral manager “ a dying breed? Why?
See Fig 7.10 (C&B 2012/14) Next Slide
No longer claim to be ignorant of moral obligations
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Three Approaches to Management Ethics C&B Figure 7.10)
KPMG (2005)
In Australia the introduction of the Criminal Code (2000) held company directors responsible for creating an “appropriate culture” within their organisations.
More direct forensic reporting of fraud http://business-ethics.org/resources-2/recommended-resources /
Results? Increase in corporate sensitivity to legal and regulatory compliance
75% (2005) believe it is the Board’s responsibility to set an appropriate “tone from the top” and monitor organisational performance against a formal code of conduct.
However… 84% of those companies that had developed a code of conduct didn’t monitor it!
KPMG’s conclusion on Australian business ethics and leadership
Ethical debate not a regular feature of most Australian boardrooms – addressed in a personalised and informal way
Lack of clarity and accountability for ethics between the Board and the CEO
Very few organisations have an explicit reporting framework
Many Boards dismiss the public’s lack of confidence as the result of sensational reporting by the press
Only a minority of boards have had any formal training in managing ethical issues or other cultural areas
Australian business suffers a vacuum in the advocacy and stewardship of business ethics
Five barriers to ethical organisations Bazerman & Tenbrunsel (HBR April 2011)
Ethical Breakdowns caused by
Ill-conceived goals: good idea to look at what you’re rewarding
Motivated blindness: people see what they want to see. Consider bias in ethical judgement
Indirect blindness: indirectness colours perceptions of responsibility example of the Merck based case
The slippery slope: minor transgressions build up
Overvaluing outcomes: rewarding results rather than high-quality decisions
(see Learning Materials Section – Week 4)
Role of Management?
Frameworks provided here present frameworks for reflection about managerial ethical practice.
Self analysis and introspection will eventually be the way that managers recognise the desirability of shifting to the moral ethic (C & B 2015)
Responsibility of senior managers to set appropriate cultural norms, but even if this does not occur, moral management can percolate upwards
Transparency and accountability
Ethics of Care model
Shifts similarly from concerns about self to those of others, but actually reflects greater involvement in networks of caring.
This youtube clip raises concerns and tensions between the individual’s concerns and values and the “business model of the organisation”
How useful are the models of Management Ethics? What might they tell us about Enron?
The importance of understanding the relationship between ethics and values
Right or wrong as part of our ethical beliefs are embedded in us from an early age . Values refer to what we think are important.
As C & B note, they can be manifest as:
Religious values
Philosophical values
Cultural values
Legal values
Professional values
Developing moral judgement in managerial decision-making
As part of a reflective framework Powers and Vogel suggest there are 6 major elements of moral judgement that might be considered in developing moral judgement:
Moral imagination - Ability to perceive web of competing economic, moral and ethical relationships.
Moral identification and ordering - Ability to discern the relevance or non-relevance of moral factors that are introduced into a decision-making situations.
Moral evaluation - Have clear principles, develop processes for weighing ethical factors, develop way to identify ethical and economic outcomes.
Tolerance of moral disagreement and ambiguity - Ability to deal in “gray” areas and operate within disagreement.
Integration of managerial and moral competence - See each decision within a moral perspective that is integrated with a management perspective
A sense of moral obligation - have a sense of integrity that oversees decision-making processes and understands what is at stake for all.
See Figure 7.15 Elements of moral judgment in amoral and moral managers
Integrating these in an organisational culture
How might the organisation support its internal stakeholders to develop and apply moral management in their daily working lives?
What value might this create for the organisation and the employees?
Summary
Business ethics are becoming a serious challenge for organisations
Major scandals of the early 2000s and the GFC highlighted the relationship between business ethics and responsibilities of business to broader stakeholder groups
The Venn diagram highlights the tensions between economic, legal and ethical expectations of the firm
Frameworks were suggested for analysing ethical questions and associated behaviour
Examples of immoral, amoral and moral management were raised and exemplified
The need for managers to understand how moral judgement develops and why it is critical to the role of the manager in the 21st century were raised
It was asked how elements of moral judgement can be integrated and embedded in organisational culture
Tutorial Week: 4
Case study for Enron
Use ethical breakdowns framework (HBR April, 2011) to identify possible causes of ethical breakdown in Enron
We will examine the Enron case using the following 3 Frameworks:
A Venn Diagram for Ethical Decision Making Figure 7.6 (Carroll & Buchholtz 2012 p189)
Three Approaches to Management Ethics Figure 7.10 (C&B 2012 p199)
Five barriers to an ethical organisation (Bazerman and Tenbrunsel 2011 p63)
In Preparation – Student to read the following Enron article in the Week 4 Learning Materials
Professional and Managerial Responsibility at Enron and Arthur Anderson (DesJardins 2011)
