Topic Organisational

Approaches in Improving Ethical Behaviour

LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. 2. 3. 4. Discuss the four main ethical safeguards; Identify some of the structural causes of unethical conduct in organisations; Identify the various means of solving unethical behaviour problem in organisations; and Identify the responsibilities of management in addressing ethical problems.

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INTRODUCTION

Figure 5.1: Illustration of an unethical behaviour

What do you think after reading the comic strip in Figure 5.1? Do you feel the act of asking money or bribes is equivalent of breaching the ethical codes laid out in an organisation. We can assume that the senior executives of most business firms want their staff members to act in ways that they would consider right, proper and just. We can also be reasonably certain that they want them to act in ways that will not offend the majority of the population, and not attract adverse publicity from the nations media. Yet, this unethical behaviour happens ever so often. Why do they occur and what can be done to prevent it? In this topic, we will examine several ways of preventing their occurrence of unethical behaviour and discuss on the causes and solutions of unethical behaviour.

5.1

IMPROVING THE ETHICAL CLIMATE IN ORGANISATIONS

In order to improve an organisations ethical climate, top management can use a variety of ethical safeguards as shown in Figure 5.2.

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Figure 5.2: Ethical safeguards

In the following sections, we will look at each approach and see how they improve an organisations ethical enviroment.

5.1.1

Ethical Codes

What is the definition of ethical codes? Let us look at the definition provided for it. Ethical codes are statements about the norms and beliefs of an organisation.

These norms and beliefs are generally proposed, discussed and defined by the senior executives in the firm before being published and distributed to all its members.

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Now, let us look at Table 5.1 for the explanation of norms and beliefs, in relation with the ethical code.
Table 5.1: Ethicals Codes on Norms and Beliefs Aspects Definition Norms are behaviour. Norms standards of Beliefs Beliefs are standards of thought. They are the ways of thinking in which the senior management of an organisation want its employees to adopt. However, it is not censorship. The intent is to encourage ways of thinking and patterns of attitudes that will lead towards the desired behaviour. Beliefs in an ethical code are generally expressed in a positive form.

They are the ways in which the senior management of an organisation want the staff members to act when confronted with a given situation.

Expressed form

Norms in an ethical code are generally expressed as a series of negative statements, for it is easier to list the things a person should not do than to be precise about the things a person should do. Employees of the company will not accept personal gifts with a monetary value over RM25 in total from any business friend or associate. Employees are expected to pay their full share of the costs of meals or other entertainment that have the value above RM25.

Example

Our first responsibility is to our customers. We wish to provide good services for the community in which we operate.

Do you think ethical codes work? Are they helpful in conveying to all employees the moral standards selected by the board of directors and president? The answer is not really. The problem is that it is not possible to state clearly and explicitly the norms and beliefs of an organisation relative to the various constituent groups (employees, customers, suppliers, distributors, stockholders and the general public) without offending at least one of these groups. For example, it is not possible for a company to say that it considers its employees are more important to the success of the firm than its stockholders. By saying that, the company sends the message

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that profits and dividends come second, which goes against the goal of many business organisations. Consequently, codes of ethics are usually written in general terms, noting obligations to each group without stating which of them takes precedence in any given situation. The basic difficulty with codes of ethics is that they do not establish priorities between norms and beliefs. Priorities are the true values of a firm. For example, let us say that one division in a firm is faced with declining sales and profits. Thus, the firm would be faced with the question of whether it should reduce its middle-management employment and cut its overheads costs (the classic downsizing decision)? The code of ethics says, in one section, that we respect our employees; while in another section, that we expect fair profits. How then do we decide on the best course of action? What is fair in this instance? The code of ethics does not provide us the answer. Ethical dilemmas are conflicts between economic and social performances. The latter is expressed as obligations to employees, customers, suppliers, distributors and the general public. Ethical codes can express a general sense of obligations which members of senior management feel towards those groups. However, they cannot help the middle-management or lower-level management to choose between groups, or between economic and social performances.

ACTIVITY 5.1
Give two examples of positive beliefs that an organisation should have. Discuss with your coursemates.

5.1.2

Ombudsman Position

An Ombudsman is a person within an organisation; often an older and respected manager who is close to retirement. He has been relieved of operating responsibilities and assigned the task of counselling younger employees on career problems, organisational difficulties and ethical issues.

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The term Ombudsman originated from the Swedish language and it means: A government agent in a country who has been specially appointed to investigate complaints made by individual citizens against the public officials for abuses of power or uncaring acts. Often, the Ombudsman can go considerably beyond counselling and investigation and is able to act informally to resolve problems. Does the position of Ombudsman work? Actually, it does not. The problem is that the person reporting the incident is not truly not implicated in any way. We can assume that Ombudsman are generally discrete in talking to an offender. However, the source of information for the Ombudsman (the originator of the complaint) is usually clear. It has to be a person within the organisation who has information about the practice and the moral scruples to report it. He is generally someone who has spoken to the offender about the practice within the past 30 days. The Ombudsman does not have to be concerned about retribution but his informer generally does.

ACTIVITY 5.2
In your opinion, do you think an Ombudsman can effectively play his role in solving cases involving ethical issues? Explain your reasons.

5.1.3

Ethics Hotlines

Sometimes, employees may face an ethical issue but are reluctant to raise it with their manager or colleagues. Ethics hotlines may provide an avenue for employees, who do not want to be seen with an ethics officer, to report or enquire about ethical matters anonymously. For example, Telekom Malaysia (TM) has set up an Ethics Hotline, which operates 24 hours every day, for staff to turn to for advice on ethical issues and concerns. Ethics hotlines can be an effective approach to protect the confidentiality of the callers, while gathering important information that is needed to resolve complaints or allegations related to ethics. Let us look at Figure 5.3, we can see an example of a corporate company which provides web based report and Ethics Hotline number for their staff should they want to report conduct that may be unethical, illegal, in violation of professional standards, or otherwise inconsistent with the company code of conduct.

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Figure 5.3: Screen capture of Ethics hotline Source: https://secure.ethicspoint.com

5.1.4

Ethics Training

An organisational compliance programme requires instituting an ethics training programme and communication system to educate employees about the firms ethical standards. Ethics training usually involves lectures offered by a company trainer and is usually given to managers. To be effective, ethics training should be related to actual situations that employees may experience in their job and possible ethical solutions to those problems. Generally, an ethics training programme should educate the organisation employees about the firms policies, expectations, the relevant laws and regulations, and general social standards. An effective ethics training would also make employees aware of the available resources, support systems and personnel who can assist with ethics and legal advice. According to Thorne, Ferrell, & Ferrell (2008), an organisations ethics training can have three goals. The goal of ethics training is to ensure that an employee: (a) (b) (c) Recognises when a situation requires ethical decision making; Understands the values and culture of the organisation; and Employee evaluate the impact of ethical decisions on the company.

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SELF-CHECK 5.1 What are the four ethical approaches used in addressing the organisations ethical enviroment? Discuss briefly on each approach.

5.2

STRUCTURAL CAUSES OF UNETHICAL BEHAVIOUR

We have seen that neither codes of conduct nor Ombudsman can ensure that the moral standards selected by the president and board of directors of a firm will be adhered by all members of that firm. Consequently, we will have to look at the causes of unethical behaviour and see if we can eliminate those causes. For example, let us look at established organisations such as General Electric, General Dynamics, E. F. Hutton and the Thorp Division of ITT. we will be looking at the reason why product managers at General Electric defrauded the government, and why regional managers at E. F. Hutton defrauded the banks. The individual managers of these large organisations cheated the government, banks and customers. However, they did not directly benefit from their unethical act. These were not instances of managerial dishonesty as there were no payments, vacations and gifts. However, the individuals did benefit indirectly. Thus, it is necessary to understand this indirect benefit for this is the structural cause of unethical behaviour within organisations. Most large companies today are diversified, within numerous divisions. Each division normally consists of a given product line, market segment and production process. Divisionalised structures of this type are generally decentralised: authority for product, market and process changes are allocated to the divisional managers, who are then held responsible for economic performance. There are two major problems with divisionalised, decentralised type of organisational structure: (a) Interrelationships between the divisions (in products, markets, processes or technologies) cannot be utilised as the basis for economies of scale or economies of scope due to the separate nature of the divisions. Corporate management in a decentralised structure has little control over the strategies of the divisions until after an outstanding success or an

(b)

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absolute failure has occurred. They are reduced to an ineffective review function. These problems brought changes in the management of diversification, starting around 1975. Before moving to the next section, attempt the exercise shown below.

EXERCISE 5.1
1. 2. 3. 4. What are ethical codes? Do ethical codes work? State your reason. Do you think ethics training is effective in improving an employees ethical behaviour? State your reason. What are the structural causes of unethical behaviour?

5.3

SOLUTIONS TO THE STRUCTURAL CAUSES OF UNETHICAL BEHAVIOUR

What can you do to remove the structural causes of unethical behaviour in organisations? Unfortunately, not much can be done. In the previous topic, we learnt on individual choice that there are no completely satisfactory means of reaching a decision when confronted by an ethical dilemma. Multiple analysis (using economic, legal and moral forms of reasoning) appears to make the issues clearer, and the proper, right or just decision more apparent. However, the process does not guarantee unanimity as the values and the priorities arising from economic, legal and moral outcomes differ among members of every organisation. Thus, there are no complete satisfactory means of changing the planning, control and motivational systems to ensure that the moral standards of senior executives will be followed. We can put less emphasis on the financial measures of performance (sales revenues, variable costs, fixed expenses and quarterly profits) and more on the numerical measures (customer complaints, quality rejections, workforce absenteeism, community attitudes and delay in responding to dividend inquiries). However, these alone are not going to solve the problem in management represents a conflict between the economic and social performances of an organisation. What do you think will happen if the conflict is not specifically addressed and resolved by the senior executives within the firm? If it is not resolved properly by the senior executives within the firm, the natural tendency of the middle-level and operating-level managers will tend to favour the economic performance of the organisation. This is so as under the current managerial systems, their performance

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is measured by economic criteria and their future is dependent upon economic results.

ACTIVITY 5.3
If you were a manager who has to solve the problem of unethical conduct in your organisation, how would you go about it? Discuss with your coursemates.

5.4

THE ETHICAL RESPONSIBILITIES OF MANAGEMENT

Let us say that you are a senior executive of a firm. How do you address and resolve the conflict between economic and social performances? The resolution of the conflict has to be done as part of the strategic planning process. Ethical issues have to be made a part of that process, and no longer ignored or pushed down onto the operating levels. Hard ethical questions have to be asked by the managers in the business units, and specific ethical answers have to be supplied by the corporate executives. If you are a corporate executive, how would you answer these difficult ethical questions? (a) (b) One of our major clients insists upon putting inaccurate statements in their advertisements. Should we maintain that client? We can reduce our costs by replacing the wholesale distributors who helped us in building the market. Should we start direct factory-to-store shipments?

Basically, your response should have the following components: (a) Character The character to face issues which have adverse social impacts associated with each of the alternatives. Courage The courage to thoughtfully evaluate each of these alternatives following economic, legal and moral forms of reasoning.

(b)

It also entails having the character to recognise that personal costs may be associated with the choice and courage to bear those costs.

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However, others may disagree with this decision because of the following differences: Differences in perspectives within the firm; or Differences in beliefs in the importance of economic outcomes, legal requirements, moral principles of benevolence and consistency, and moral values of justice and liberty.

We have numerous economic, legal and ethical outcomes, requirements, principles and values, but no clear ordering among them. However, this is not an excuse to avoid making ethical decisions in management. We have to make those decisions based on our sense of responsibility to others as it is a test of our character and a measure of our courage.

SELF-CHECK 5.2
How does the management respond in addressing ethical problems in an organisation?

Test your understanding by doing the exercise shown below.

EXERCISE 5.2
1. 2. Compare and contrast the two newly developed methods (GE and BCG) for the management of diversity. What can be done to solve the structural causes of unethical behaviour problem existing in organisations?

There are mainly four approaches in addressing the ethical climate in an organisation and they are ethical codes, Ombudsman position, ethics hotlines and ethics training. Ethical codes are lists of statements containing the norms and beliefs of an organisation published and distributed to all members of the firm. An Ombudsman is normally an elderly and respected person within an organisation who has been relieved of operating responsibilities and given the task of counselling younger employees on various ethical issues.

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Divisionalisation and decentralisation are believed to be the prime structural causes of unethical behaviours. The solution for unethical behaviour is by putting less emphasis on the financial measures of performance and more on the numerical measures. The management has to make decisions related to unethical conduct based upon their sense of responsibility to others as it is a test of their character and a measure of their courage.

Beliefs Decentralisation Divisionalisation Ethical codes

Ethics hotlines Ethics training Norms Ombudsman