The Business Case for an Ethical Culture

AWB 2000 The ethics of AWB staff is critical to the reputation and integrity risks of AWB. We found incidents that created ethical questions such as the offer of gifts, entertainment and money ... (these incidents) did cause concern to your staff. Reduction of these risks can be achieved through education, improved communication, a consistent AWB policy and the enforcement of that policy. Other methods can be implemented to review and prevent incidents such as rotation of staff, audits, awareness of ethical issues and dilemmas that may be encountered.
Ethical culture Report to AWB, August 2000

AWB 2007 AWB had a closed culture of superiority and impregnability, of dominance and selfimportance. Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and the management of companies. The starting point is an ethical base. At AWB, the Board and management failed to create, instil or maintain a culture of ethical dealing.
Report of the Cole Inquiry November 2006

This issue is not that companies are necessarily behaving as badly as AWB it is more a case of sharp practice losing its ability to disturb us.
Tony Sutcliffe AFR 1 November 2006
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What is Ethics?
Which of the following quotations most closely aligns with your own perception of what ethics means to business? Business ethics comprises business principles and standards that guide behaviour in the world of business.
Ferrell, Fraederich and Ferrell

Ethics is concerned with actions and practices directed towards achieving a good life. It is concerned with what people ought to do, not what is expedient.
Robert C Solomon

Ethics is the thought process that comes into play when we are deciding between right and wrong, or more typically, about weighing two rights. Its establishing the process of using appropriate principles of decision making when differing values come into conflict with each other.
Dawn Maree Driscoll and Michael Hoffman

Ethics has everything to do with management. Managers who fail to provide proper leadership and to institute systems that facilitate ethical conduct share responsibility with those who conceive, execute, and knowingly benefit from corporate misdeeds.
Lynn Sharp Paine Harvard Business School

Key Concepts
Ethics Morality - standards of behaviour - concepts of right and wrong

Relativism - notion that morality is relative to culture, time & location Absolutism - notion that right and wrong are fixed

Ethics and Etiquette-

Ethics refers to standards of behaviour informed by a moral standard Etiquette simply refers to a standard practice Practices in some countries are a matter of etiquette that would be seen as unethical in others Can Ethics be Relative?

Influences on Behaviour

Individual behaviour in organisations is NOT solely a function of individual values if this were true, why do good people do unprofessional or unethical things?

What we know about People and Ethics

Majority of people not taught concepts of ethics and dealing with ethical dilemmas Most under graduate and postgraduate programs in business have little if any required courses in ethics

What Motivates Unethical Behaviour?

Cressey examined white collar criminals and concluded that for unethical practice to occur (fraud and corruption) 3 factors must be present:
1. 2. 3.

Pressure Opportunity Rationalisation

More recent research has also identified

1. 2. 3.

Role of significant others Leadership Organisational culture

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Kohlbergs Decision Making Model

American psychologist Lawrence Kohlberg developed a model that explains how people arrive at a (ethical) decision. He identified 6 stages of Cognitive Moral Development each stage is characterised by an individuals ability to assess the ethical complexity surrounding a decision-It helps explain how they see the world and the critical factors which influence their decisions. As people progress through stages of CMD, and with time, education, and experience, they may change their values and ethical behavior

How people make decisions about ethics

The stages in developing a sense of ethics

Principle based

Is my behaviour guided by universally accepted principles?

Conformity

What behaviour do I need to demonstrate to be accepted by my peers / my organisation?

Self interest

If I behave in this way, will I be punished or rewarded?

Adapted from Kohlbergs Ethical Decision Making Model Practical Business Ethics, French and Granose, Prentice Hall 1995
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Integrity behaviour
Benjamins model identifies four personality types which are unlikely to uphold integrity (French 1995: 166-9).

moral chameleons

- need for acceptance means values - behaviours driven by short term advantage - differing public versus private values

change
opportunists hypocrites self deceivers

- espouse integrity and believe they act consistently with these, yet actions suggest otherwise

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Ethics Bank

Donaldson (1998) suggests that some peoples approach to ethical decision is akin to a ledger of right and wrong.
They consciously follow an action which they know to be wrong, but argue that it is mitigated by other good actions they have done in the past. Consciously or unconsciously, people keep track of the value of these actions resulting in an ethics balance allowing good behaviour to be deposited with the ability to allow the occasional withdrawal via bad behaviour.

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How Does Unethical behaviour become accepted?

Rationalising
People seek to explain away the action - despite knowing their actions were wrong The intention is to deflect accountability! Continued acceptance of these increases the likelihood of further unethical practices Examples:
What could I do, my arm was twisted? I had no choice. Its not my concern what the companys intermediaries do overseas in dealing with our customers. Its out of my control. Well, no harm was done. Whats the problem. They deserved it anyway they screwed us last time.

What are you worried about? Our competitors do this all then time, and, in fact, worse than us. If we cant do business this way, we couldnt compete.
I did it for all the right reasons. The main beneficiary was the company. I am just clawing back what is rightfully mine.

Ashforth and Annand The Normalisation of Corruption in Organisations, Research in Organisational Behaviour Vol. 25, 2003

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How Does Unethical behaviour become accepted?

Normalising

Normalising is the process by which unethical activities slowly becomes accepted as normal day to day work practices
It involves small activities being put forward as acceptable- usually by older experienced workers as standard practice or perks- these steadily increase to a point where people no longer question whether they are ethical

Examples:
Dont worry about it mate- everyone takes this stuff home - we always have

This is normal in this industry forget what the Code of Conduct says.
I dont know how I ended up taking that bribe. My relationship with that supplier started with lunch. I just cant explain how I got myself into this mess. We were working to a tight deadline. would not have got the job done. If I hadnt made that payment, we just

Ashforth and Annand The Normalisation of Corruption in Organisations, Research in Organisational Behaviour Vol. 25, 2003

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How people make decisions about ethics

People tend to make decisions using one or two of the following approaches

OUTCOME PROCESS CHARACTER

Outcome, either for them as an individual or for the organisation.

Following due process and / or a series of principles or duties.

What is accepted as good character.

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Importance for Organisations

Perceptions of what is right differs

Opportunity and need critical in determining unethical practice

People will rationalise unethical practice Most people unskilled at ethical decision making Organisational systems and key personnel are key influencers

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The Purpose of an Ethical Culture

Michael Hoffman, Director of the Center for Business Ethics at Bentley College suggests that a major reason of corporate wrong doing is not because business people are less ethical than others, but rather that business has given so little thought to the development of a moral corporate culture in which individuals can act ethically.
The purpose of an ethical culture is to establish a common set of values and practices that ensure consistency The development of an ethical culture will not occur simply by the publication of a code of ethics or conduct It needs to be an holistic system supported and maintained so that new behaviours are reinforced.

Tony Sutcliffe AFR 1 November 2006

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Fostering Ethical Cuture

If organizations are to create or foster an ethical culture then different organizational types may require different enculturation or institutionalisation strategies. Hoffman and Fredrick (1996) suggest corporations need to examine if their structures, policies and processes are compatible with ethical behaviour. If they are not, steps need to be taken to change or supplement them.

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Ethical Leadership
Ethical leadership is the first and foremost in influencing ethical organisational behaviour; it is not the corporation itself that exerts moral responsibility but rather the individual members of the corporation. (Ritchie, 1996). This point is emphasised by Trevino & Nelson (1995) who identify that leadership is crucial to the ethical behaviour and culture of an organisation as integrity or the lack of it, of flows from the top down Business Roundtable report (made up of executives from major American corporations), that identified leadership as crucial to the establishment of organisational ethics: to achieve results, the chief executive officer and those around the CEO need to be openly and strongly committed to ethical conduct and constant leadership in tending and renewing the values of the organisation

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Ethical Leadership
The extent to which an organisation is prepared to act (un)ethically to achieve it stated outcomes can more often than not, be traced to its executives. The primary reasons why systems to develop ethical cultures fail also rests with senior executives (Newton in Hoffman and Fredrick, 1995).

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Codes Not Enough

Simply introducing a code of ethics or making public statement around the ethical outlook of an organisation is no guarantee that individuals within the company will in fact behave ethically.

Organisations need to tackle the development and implementation of ethical programmes in the same manner as other corporate strategic plans.
This means an informed and adequately researched approach .
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ethics framework
setting the ethical tone ethical leadership

planning the elements

creating the ethics system evaluating performance building commitment written guides to acting ethically developing ethical skills
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managing the system reporting breaches

reinforcing ethical behaviour

Better Practice Integrity Framework Overview of framework

Australian Standard 8001:2003

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Lessons from Organisations- Doing it Right

Increased staff retention Identification of risk behaviour earlier Reduction in negaitive public attention Increased reputation Increased loyalty

Australian Standard 8001:2003

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Lessons from Organisations- Doing it Wrong

Expenditure on part system ineffective Little or no change to employee behaviour

Ineffective identification of risk behaviourContinued questionable activities-people know but wont report Increased ethical cyncisim Ethics seen as a control system Failure of Leadership to role model

Australian Standard 8001:2003

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What is Happening in Other Companies and Sectors?

Most organisations have a code- legal or ASX requirement

Code of ethics vs code of conduct- used synonymously

Use of I language rather than we- prescriptive rather than inclusive Little training in ethics

Delegated to HR to manage the system- little integration

Desire to keep it in house Seen as a one-off Limited expertise in Australia Few programs or courses in organisational ethics

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Benchmarking
Most business ethics literature- and thinking about ethical culture using formal systems originated in the US 1991 Sentencing Guidelines & Sarbanes Oxleylegislative driven - compliance Research has demonstrated that organisations with a commitment to ethics have a greater market added value (Fortune 500) measure than those that do not

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