3.

Ethical Behavior in Corporate Culture

Businesses can either voluntarily develop appropriate
policies (of ethical behavior) or can be forced to do so by
public opinion. When external pressure is the reason for
ethics programs, the adapted practices are not integrative:
the company can have memos, reminders and some un-
integrated policies. But if ethics planning comes from the
top management, the ethics practices are more likely to be
integrative: the company links rewards to managerial
behavior to reinforce ethical ideals, ethical behavior is
made a public relation tool. Sometimes businesses of such
category go beyond regulatory or even cultural limits to
become an ethically good business.
3.1 Ethical Management and Management of Ethics
Ethical management: Acting ethically as a manager, by
doing the right thing. Unethical management or ethical
misconduct has ended several promising careers; actions
of few individuals severely harmed and even destroyed
some businesses.
Management of ethics: managing activities that are
required of a firm or its employees to behave ethically;
managing the rules, procedures, policies and values
consistent with fairness and commitment in relation to
conditions at the workplace, external environment, racial
justice, human rights, and interests of the stakeholders

3.2 The Role of Management in General

Internally, management of firms bind members
together through myriad rules, procedures, policies
and values that must be carefully managed.
Effective organizational functioning depends on
gaining the acceptance of rules, policies and other
guides and this acceptance requires a perception of
fairness and commitment.
Because of the complexity of economic, social,
global, natural, political, legal and government
regulations and environment, the management must
decide whether to adhere to constant ethical
principles or to adjust to domestic standards and
culture.

3.2.1 The Role of Management in General

Leading by example is the first step in fostering a culture of
ethical behavior in the companies. Other methods: creating a
common interest by favorable corporate culture, setting high
standards, norms, framing attitudes for acceptable behavior,
making written code of ethics to be abided by at all levels from
top to bottom, deciding the policies for recruiting, selecting,
training, induction, promotion, monetary/non-monetary
motivation, remuneration and retention of employees.
Managers set standards for determining the difference between
good or bad, right or wrong, fair or unfair, play an important
role in establishing its ethical tone and they should not behave
as if the only thing that matters is profit and the employees are
likely to act in a like manner.
managers play an active role in creating a working environment
where employees are encouraged and rewarded for acting in an
ethical manner.
3.2.2 The Role of Management in General
Managers who want employees to behave ethically must exhibit
ethical decision making practices themselves. Managers have to
remember that leading by example is the first step in fostering a
culture of ethical behavior in their companies. No matter what the
formal policies say or what they are told to do, if employees see
managers behaving unethically, they will believe that the company
wants them to act in a like manner.
Policy makers, as well as the managers and (senior) level
employees of a company need to ask these questions:
How ethically vulnerable is the company?
What are the core values and guiding principles of the
company?
Is the company committed to living and exhibiting the core
values in everything it does?
The answers to these questions will define the state of ethics
in the business.
3.3 The Role of Leadership
Leadership in business must set the standard and walk the
talk when it comes time to ethical behavior. A leader must
constantly keep his or her actions above reproach. And is
committed to high standards.
Knowing what is right is very important to personal and
business ethics. Doing what is right is absolutely critical to
personal and business ethics. A strong unwavering
commitment to core values and guiding principles of a
company or organization will lead to the right ethical
decisions and actions.
The best way to promote ethical behavior is by setting a
good personal example. Teaching an employee ethics is not
always effective.
People at the top of an organization are expected to share
the burden of cost reductions and belt-tightening during
difficult times.
3.3.1 Expectations from an Ethical Manager
Managers have to remember that leading by example is the
first step in fostering a culture of ethical behavior in the
companies. However the other methods can be
Creating a common interest by favorable corporate
culture;
Setting high standards, norms, framing attitudes for
acceptable behavior;
Making written code of ethics to be abided by at all levels
from top to bottom;
Deciding the policies for recruiting, selecting, training,
induction, promotion; and
Monetary/non-monetary motivation, remuneration and
retention of employees.
3.4: Ethical Dilemmas
One of the most important activity in managing ethics is the
resolving of ethical dilemmas emanating from
Transfer of operations of a company from one country to
another (when cultures differ), face problems of a host
country where industries are relocated to avoid problems
in the home country;
Transfer pricing (setting prices of goods and services sold
by one member of a corporate family to another, such as
from a parent to its subsidiary in a foreign country
(because of difference in taxation);
Transfer of technology (should a country buy the
technology even if it has no use of it?)
Fixation of wages by a multinational company to
employees of the host country (how to establish parity?)
3.5 How to Solve Ethical Dilemma
When faced with ethical dilemmas, its important to consider
outcomes of the decision-making process. One way of dealing
ethical dilemmas is by using the four way test to evaluate
decisions. This test involves asking four questions:
Is my decision a truthful one?
Is my decision fair to everyone affected?
Will it build goodwill for the organization?
Is the decision beneficial to all parties who have a vested
interest in the outcome?
When these four questions can truthfully be answered with a
yes, it is likely that the decision is an ethical one.
Another way of making sure decisions are truly ethical is by
using the publicity test. Ask yourself how you would feel if
your actions were published in your hometown newspaper. If
you would be comfortable: chances are that your decision is
an ethical one. But if you do not want others to learn about
your actions, you probably need to rethink your decision.
3.6 Understanding Whether a Company is
Ethical in Conducting Business
In the increasingly conscience-focused marketplaces of the
21st century, the demand for more ethical business
processes and actions is increasing; more pressure is
applied on industry to improve business ethics through
new public initiatives and laws. Businesses can often
attain short-term gains by acting in an unethical fashion;
but such behaviors tend to undermine the economy over
time.
In the end, it may be up to the public to make sure that a
company adheres to correct business ethics. If the
company is making large amounts of money, they may not
wish to pay too close attention to their ethical behavior.
There are many companies that pride themselves in their
correct business ethics, but in this competitive world, they
are becoming very few and far between.
3.7: Strategies in Managing Ethics
6 significant strategies:
1. Commitment from top management
2. Having a Code of Ethics
3. Constituting Ethics Committees
4. Conducting Ethics Training Programs
5. Having a whistle blowing system in place
6. Enacting legislation outlawing unethical
conduct
3.8 Ethics Policies
Many companies formulate internal ethics policies, which can be simple and
generalized (called a corporate ethics statement), or they can be more
detailed, containing specific behavioral requirements (called corporate ethics
codes), generally meant to identify the company's expectations of workers
and to offer guidance on handling some more common ethical problems.
An increasing number of companies also require employees to attend
seminars regarding business conduct; some companies even require their
employees to sign agreements stating that they will abide by the company's
rules of conduct.
Many companies assess the environmental factors that can lead employees
to engage in unethical conduct.
Not everyone supports corporate policies that govern ethical conduct.
Some claim that ethical problems are better dealt with by depending upon
employees to use their own judgment.
Others believe that corporate ethics policies are primarily rooted in
utilitarian concerns, and that they are mainly to limit the company's legal
liability, or to curry public favor by giving the appearance of being a good
corporate citizen.
Ideally, the company will avoid a lawsuit because its employees will follow
the rules. Should a lawsuit occur, the company can claim that the problem
would not have arisen if the employee had only followed the code properly.
3.9 Factor for Success of an Ethics Policy
To be successful, most ethicists would suggest that an
ethics policy should be:
Given the unequivocal support of top management,
by both word and example.
Explained in writing and orally, with periodic
reinforcement.
Doable....something employees can both understand
and perform.
Monitored by top management, with routine
inspections for compliance and improvement.
Backed up by clearly stated consequences in the
case of disobedience.
Remain neutral and nonsexist.

3.10: Ethics Committees, Ethics Training,
Whistle-blowing and Laws
Companies can form ethics committees,
sometimes high level ones, for advise on ethical
issues
All large companies in developed countries now
provide training in ethics for their employees
Whistle-blowing enables an employee to tip off
the top management about misdeeds of any
person; protect the identity of the caller
Laws represent a societys attempt to formalize or
to reduce to written rules, ethical principles; every
country does have its own laws
3.11 Standardizing Ethical Behavior: Guideline
and Code of Ethics
Ethics Guideline
There are no global governance mechanisms to regulate and
discipline companies that violate ethical standards. But businesses
can and should create an environment of ethical practices and the
motivations of businesses to have guidelines on how to create such
ethics are:
Guidelines created by companies are less problematic than those
created by the government
Such guidelines stimulate firms to operate according to the same
principles (contributing to development of a level playing field for
all organizations)
Ethical conduct is needed in an increasingly interdependent world
Norms of ethics reduce operating uncertainties, and
The guidelines lead companies to beyond simply doing the right
things.
3.12 Company Code of Ethics
Ethical code/company code of ethics/code of professional and social
responsibility may dispense with difficult issues of what behavior is
"ethical". The Company Code of Ethics typically explains the
why of a global ethic. Large multinationals introduced formal code
of ethics in early 1990s.
Some codes of ethics are often social issues, some set out general
principles about an organization's beliefs on matters such as quality,
employees or the environment, others set out the procedures to be
used in specific ethical situations - such as conflicts of interest or the
acceptance of gifts, and delineate remedies if there is any violation.
Code of ethics comprises a set of principles developed in advance
and not of the choices made reflexively at the moment of an
ethical lapse. The code defines the standards of right and wrong for
the company who develops it, helps it resist temptation and becomes
the basis for making ethically sensitive decisions.
Ethical Codes are often not part of any more general theory of ethics
but accepted as pragmatic necessities. They are distinct from moral
codes that may apply to the culture, education, and religion of a
whole society.
3.12.1. Company Code of Ethics is more than a written
document; provides statement (sanctions and rewards) on
Important Variables
1. Fundamental honesty and
adherence to law
9. Trading in securities and use
of inside information
2. Product safety and quality,
workplace health and safety
procedure
10. Acquiring and using
information about others
3. Conflicts of interest 11. Payments to obtain business
4. Employment practices 12.Environment protection
5. Fair practices in selling and
marketing and selling/providing
services
13. Internet and e-commerce
activities
6. Financial reporting 14. Intellectual property or use
of proprietary information
7. Supplier relationships
8. Pricing, billing, and contracting 15. Security and political
activities
3.13 The Content of the Company Code of Ethics

Company code of ethics usually covers the
following areas:
Contracts conflict of interest, bribery, security
of proprietary information, receiving gifts
Legally and generally accepted standards
workplace safety, political activities, sexual
harassment etc
Others natural environment, child labor,
human rights.
3.14 Variable covered in Code of Ethics
Code of Ethics is something more than a written document and has to
have the commitment towards reward and sanctions based on
following important variables
Fundamental honesty and adherence to law
Product safety and quality, workplace health and safety procedure
Conflicts of interest
Employment practices
Fair practices in selling and marketing and selling/providing services
Financial reporting
Supplier relationships
Pricing, billing, and contracting
Trading in securities and use of inside information
Payments to obtain business
Acquiring and using information about others
Security and political activities
Environment protection
Intellectual property or use of proprietary information
Internet and e-commerce activities
3.15 Effectiveness and Benefits of Code of Ethics
Effectiveness of Code of Ethics depends on the extent to
which management supports them with sanctions and
rewards. Violations of a private organization's code of
ethics usually can subject the violator to the organization's
remedies (in an employment context, this can mean
termination of employment; in a membership context, this
can mean expulsion). Of course, certain acts that constitute
a violation of a code of ethics may also violate a law or
regulation and can be punished by the appropriate
governmental organ.
Benefits of codes of ethics
Code of ethics may ensure success and even if it is flawed, it may
prevent failures
If codes exist, mangers do not guide the firms into ethical morass
or individuals will not rely on conflicting personal ethics when
acting on behalf of the firm.
3.15.1 Code of Ethics
Some Key Points of a Company Code of Ethics
Respect basic human rights and freedom
Minimize any negative impact on local policies
Maintain high standards of local social involvement
Transfer technology and promote R & D
Protect the environment
Ensure consumer protection
Follow fair employment practices including more
employment opportunities for local people and security
of their jobs
3.16 Problems with the Code of Ethics
General problems having relevance more to the national
context:
It is important to be cautious that the Code of Ethics
Is not converted into a public relation tool rather than its
being a behavioral guide
Does not lack specific content (a perennial problem with
documents of such type) or ignore rights of key
stakeholders in their dealings with other organizations
Integrates code compliance very well into the
organizational procedure
Does not fail because of not providing a framework for
communication with external communities about the
success or failures of the company in achieving the Codes
objectives
Can overcome difficulties, to the extent possible, in being
part of an integrated process of decision making
3.17 Problems with the Code of Ethics
Problems having relevance to international context
Global rules are likely to emerge from a negotiation process
but they are unlikely to reflect values and habits of all
cultures
The rules are developed by firms from westernized
countries and reflect western rules and it is not easy to
reconcile them with patterns in most participating nations
and sustain them in environment of these nations, especially
the developing ones.
Global ethics is in fact an end and not a beginning point but
the practice of global ethics is not static: when conditions
change, the organizations need to change the approach and
attitudes how to sustain the rules in such a dynamic
environment?
Global ethics may serve to depress innovation (since some
will hesitate to act in absence of clear guidelines) how to
overcome the problem, for example, in medical science?
3.18 Important Activities in Implementation
of Code of Ethics
Communicate with employees so that they
understand what behaviors are expected and
why; include notice of sanctions for ethical
violations.
Monitor ethical behavior; include periodical
inspections or progress reports.
Link ethics to rewards; integrate ethics code
into everyday activities.
Audit results for feed-through to next step
processes.