1 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 self-importance. 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 The Business Case for an Ethical Culture
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1
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 self-importance. 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 InquiryNovember 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
The Business Case for an Ethical Culture
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“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
Which of the following quotations most closely aligns with your own perception of what ethics means to business?
What is Ethics?
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Key Concepts
Ethics - standards of behaviour
Morality - concepts of right and wrong
Relativism - notion that morality is relative to culture, time & location
Absolutism - notion that right and wrong are fixed
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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?
Ethics and Etiquette-
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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?
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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
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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. Pressure
2. Opportunity
3. Rationalisation
More recent research has also identified
1. Role of significant others
2. Leadership
3. Organisational culture
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Kohlberg’s 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 individual’s 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
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How people make decisions about ethics
Principle based Is my behaviour guided by universally accepted principles?
ConformityWhat 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 Kohlberg’s Ethical Decision Making Model – Practical Business Ethics, French and Granose, Prentice Hall 1995
The stages in developing a sense of ethics
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Integrity behaviour
Benjamin’s model identifies four personality types which are unlikely to uphold integrity (French 1995: 166-9).
moral chameleons - need for acceptance means values change
opportunists - behaviours driven by short term advantage
hypocrites - differing public versus private values
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 people’s 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?
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.”
“It’s not my concern what the company’s intermediaries do overseas in dealing with our customers. It’s out of my control.”
“Well, no harm was done. What’s 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 can’t do business this way, we couldn’t compete.”
“I did it for all the right reasons. The main beneficiary was the company.”
“I am just clawing back what is rightfully mine.”
Rationalising
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 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: “Don’t 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 don’t know how I ended up taking that bribe. My relationship with that supplier started with lunch. I just can’t explain how I got myself into this mess.”
“We were working to a tight deadline. If I hadn’t made that payment, we just would not have got the job done.”
Normalising
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
OUTCOME Outcome, either for them as an individual or for the organisation.
PROCESS Following due process and / or a series of principles or duties.
CHARACTER What is accepted as good character.
People tend to make decisions using one or two of the following approaches
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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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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
The Purpose of an Ethical Culture
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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
developing ethical skills
evaluating performance
building commitment
creating the ethics system
reinforcing ethical behaviour
reporting breaches
written guides to acting ethically
ethical leadershipsetting the ethical tone
planning the elements
managing the system
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Better Practice Integrity Framework - Overview of framework
Australian Standard 8001:2003
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Lessons from Organisations- Doing it Right
Australian Standard 8001:2003
Increased staff retentionIdentification of risk behaviour earlierReduction in negaitive public attention
Increased reputationIncreased loyalty
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Lessons from Organisations- Doing it Wrong
Australian Standard 8001:2003
Expenditure on part system ineffective
Little or no change to employee behaviour
Ineffective identification of risk behaviour-
Continued questionable activities-people know but won’t report
Increased ethical cyncisim
Ethics seen as a control system
Failure of Leadership to role model
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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 Oxley- legislative 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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