Unit 4 - Managing to be ethical: debunking five business ethics myths

Managing to be ethical: debunking five business ethics myths

Myth 1: it’s easy to be ethical

A 2002 newspaper article was entitled, ‘Corporate ethics is simple: If something stinks, don’t do it.’ The article went on to suggest ‘the smell test’ or ‘If you don’t want to tell your mom what you’re really doing…. Or read about it in the press, don’t do it.’ The obvious suggestion is that being ethical in business is easy if one wants to be ethical. A further implication is that if it’s easy, it doesn’t need to be managed. But that suggestion disregards the complexity surrounding ethical decision-making, especially in the context of business organizations.

Ethical decisions are complex

First, ethical decisions aren’t simple. They’re complex by definition. As they have for centuries, philosophers argue about the best approaches to making the right ethical decision. Students of business ethics are taught to apply multiple normative frameworks to tough dilemmas where values conflict. These include consequentialist frameworks that consider the benefits and harms to society of a potential decision or action, deontological frameworks that emphasize the application of ethical principles such as justice and rights, and virtue ethics with its emphasis on the integrity of the moral actor, among other approaches. But, in the most challenging ethical dilemma situations, the solutions provided by these approaches conflict with each other, and the decision maker is left with little clear guidance.

Moral awareness is required

Second, the notion that ‘it’s easy to be ethical’ assumes that individuals automatically know that they are facing an ethical dilemma and that they should simply choose to do the right thing.

Researchers have begun to study this phenomenon, and they refer to it as moral awareness, ethical recognition, or ethical sensitivity. The idea is that moral judgement processes are not initiated unless the decision-maker recognizes the ethical nature of an issue. So, recognition of an issue as an ‘ethical’ issue triggers the moral judgement process, and understanding this initial step is key to understanding ethical decision-making more generally.

T.M. Jones proposed that the moral intensity of an issue influences moral issue recognition, and this relationship has been supported in research. Two dimensions of moral intensity – magnitude of consequences and social consensus – have been found in multiple studies to influence moral awareness. An individual is more likely to identify an issue as an ethical issue to the extent that a particular decision or action is expected to produce harmful consequences and to the extent that relevant others in the social context view the issue as ethically problematic.

Ethical decision-making is a complex, multi-stage process

Moral awareness represents just the first stage in a complex, multiple-stage decision-making process that moves from moral awareness to moral judgement (deciding that a specific action is morally justifiable), to moral motivation (the commitment or intention to take the moral action), and finally to moral character (persistence or follow-through to take the action despite challenges).

The second stage, moral judgment, has been studies within and outside the management literature. Kohlberg found that people develop from childhood to adulthood through a sequential and hierarchical series of cognitive stages that characterize the way they think about ethical dilemmas. Moral reasoning processes become more complex and sophisticated with development. Higher stages rely upon cognitive operations that are not available to individuals at lower stages, and higher stages are thought to be ‘morally better’ because they are consistent with philosophical theories of justice and rights.

At the lowest levels, termed ‘preconventional’, individuals decide what is right based upon punishment avoidance (at stage 1) and getting a fair deal for oneself in exchange relationships (at stage 2). Next, the conventional level of cognitive moral development includes stages 3 and 4. At stage 3, the individual is concerned with conforming to the expectations of significant others, and at stage 4 the perspective broadens to include society’s rules and laws as a key influence in deciding what’s right. Finally, at the highest ‘principled’ level, stage 5, individuals’ ethical decisions are guided by principles of justice and rights.

Perhaps most important for our purposes is the fact that most adults in industrialized societies are at the ‘conventional’ level of cognitive moral development, and less than twenty per cent of adults ever reach the ‘principled’ level where thinking is more autonomous and principle-based. In practical terms, this means that most adults are looking outside themselves for guidance in ethical dilemma situations, either to significant others in the relevant environment (e.g., peers, leaders) or to society’s rules and laws. It also means that most people need to be led when it comes to ethics.

The organizational context creates additional pressures and complexity

Moral judgment focuses on deciding what’s right – not necessarily doing what is right. Even when people make the right decision, they may find it difficult to follow through and do what is right because of pressures from the work environment.

It may seem curious that people often worry about whether others will think of them as too ethical. But all of us recognize that ‘snitches’ rarely fit in, on the playground or in life, and whistleblowers are frequently ostracized or worse. The reasons for their ostracism are not fully understood, but they may have to do with humans’ social nature and the importance of social group maintenance. Research suggests that people who take principled stands, such as those who are willing to report a peer for unethical behaviour, are seen as highly ethical while, at the same time, they are thought to be highly unlikable.
 

Myth 2: unethical behaviour in business is simply the result of ‘bad apples’

A recent headline was ‘How to Spot Bad Apples in the Corporate Bushel.’14 The bad-apple theory is pervasive in the media and has been around a long time. In the 1980s, during a segment of the McNeil Lehrer Report on PBS television, the host was interviewing guests about insider trading scandals. The CEO of a major investment firm and a business school dean agreed that the problems with insider trading resulted from bad apples. They said that educational institutions and businesses could do little except to find and discarded those bad apples after the fact. So, the first reaction to ethical problems in organizations is generally to look for a culprit who can be punished and removed. The idea is that if we rid the organization of one or more bad apples, all will be well because the organization will have been cleansed of the perpetrator.

Certainly there are bad actors who will hurt others or feather their own nests at others’ expense – and they do need to be identified and removed. But, as suggested above, most people are the product of the context they find themselves in. They tend to ‘look up and look around,’ and they do what others around them do or expect them to do. They look outside themselves for guidance when thinking about what is right. What that means is that most unethical behaviour in business is supported by the context in which it occurs – either through direct reinforcement or unethical behaviour or through, benign neglect.

The bottom line here is that most people, including most adults, are followers when it comes to ethics. When asked or told to do something unethical, most will do so. This means that they must be led toward ethical behaviour or be left to flounder. Bad behaviour doesn’t always result from flawed individuals. Instead, it may result from a system that encourages or supports flawed behaviour.

Myth 3: ethics can be managed through formal ethics codes and programs

Research suggests that formal ethics and legal compliance programs can have a positive impact. For example, the Ethics Resource Center’s National Business Ethics Survey19 revealed that in organizations with all four program elements (standards, training, advice lines, and reporting systems) there was a greater likelihood (78 per cent) that employees would report observed mis-conduct to management. The likelihood of reporting declined with fewer program elements. Only half as many people in organizations with no formal program said that they would report misconduct to management.

Yet, creating a formal program, by itself, does not guarantee effective ethics management. Recall that For example, the National Business Ethics Survey reports that when executives and supervisors emphasize ethics, keep promises, and model ethical conduct, misconduct is much lower than when employees perceive that the ‘ethics walk’ is not consistent with the ‘ethics talk’. In another study formal program characteristics were found to be relatively unimportant compared with more informal cultural characteristics such as messages from leadership at both the executive and supervisory levels. In addition, perceived ethics program follow-through was found to be essential. Organizations demonstrate follow-through by working hard to detect rule violators, by following up on ethical concerns raised by employees, and by demonstrating consistency between ethics and compliance policies and actual organizational practices. Further, the perception that ethics is actually talked about in day-to-day organizational activities and incorporated into decision-making was found to be important.

So, for formal systems to influence behaviour, they must be part of a larger, coordinated cultural system that supports ethical conduct every day. Ethical culture provides informal systems, along with formal systems, to support ethical conduct.

Myth 4: ethical leadership is mostly about leader integrity

The mythology of ethical leadership focuses attention narrowly on individual character and qualities such as integrity, honesty, and fairness.

In most large organizations, employees have few face-to-face interactions with senior executives. So, most of what they know about a leader is gleaned from afar. In order to develop a reputation for ethical leadership, an executive must be perceived as both a ‘moral person’ and a ‘moral manager’.

Being perceived as a ‘moral person’ is related to good character. It depends upon employee perceptions of the leader’s traits, behaviors, and decision-making processes. Ethical leaders are thought to be honest and trustworthy. They show concern for people and are open to employee input. Ethical leaders build relationships that are characterized by trust, respect and support for their employees. In terms of decision-making, ethical leaders are seen as fair. They take into account the ethical impact of their decisions, both short term and long term, on multiple stakeholders. They also make decisions based upon ethical values and decision rules, such as the golden rule.

But being perceived as a ‘moral person’ is not enough. Being a ‘moral person’ tells followers what the leader will do. It doesn’t tell them what the leader expects them to do. Therefore, a reputation for ethical leadership also depends upon being perceived as a ‘moral manager,’ one who leads others on the ethical dimension, lets them know what is expected, and holds them accountable. Moral managers set ethical standards, communicate ethics messages, role model ethical conduct, and use rewards and punishments to guide ethical behavior in the organization.

Combining the ‘moral person’ and ‘moral manager’ dimensions creates a two-by-two matrix (see Figure 20.1) a leader who is strong on both dimensions is perceived to be an ethical leader. People knew what they could expect from him, and they knew what he expected of them from an ethics perspective.  

 Myth 5: people are less ethical than they used to be

According to a poll released by the PR Newswire in Summer 2002, sixty-eight per cent of those surveyed believe that senior corporate executives are less honest and trustworthy today than they were a decade ago. But unethical conduct has been with us as long as human beings have been on the earth, and business ethics scandals are as old as business itself. The Taimud, a 1500-year-old text, includes about 2 million words and 613 direct commandments designed to guide Jewish conduct and culture. More than one hundred of these concern business and economics. Why? Because ‘transacting business, more than any other human activity, tests our moral mettle and reveals our character’ and because ‘working, money, and commerce offer … the best opportunities to do good deeds such as … providing employment and building prosperity for our communities and the world.’

Alan Greenspan said it well on July 16, 2002: ‘It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed [have] grown so enormously.’ So, unethical behaviour is nothing new, and people are probably not less ethical than they used to be. But the environment has become quite complex and is rapidly changing, providing all sorts of ethical challenges and opportunities to express greed.

If ethical misconduct is an ongoing concern, then organizations must respond with lasting solutions that embed support for ethics into their cultures rather than short-term solutions that can easily be undone or dismissed as fads.

 What executives can do: guidelines for effective ethics management

First: understand the existing ethical culture

Leaders are responsible for transmitting culture in their organizations, and the ethical dimension of organizational culture is no exception. According to Schein, the most powerful mechanisms for embedding and reinforcing culture are;

·         what leaders pay attention to, measure, and control;

·         leader reactions to critical incidents and organizational crises; deliberate role modelling, teaching, and coaching by leaders;

·         criteria for allocation of rewards and status;

·         criteria for recruitment, selection, promotion, retirement, and excommunication.

If leaders wish to create a strong ethical culture, the first step is to understand the current state: What are the key cultural messages being sent about ethics? It’s a rare executive who really understands the ethical culture in an organization. And the higher you go in the organization, the rosier the perception of the ethical culture is likely to be. Why? Because information often gets stuck at lower organizational levels, and executives are often insulated from ‘bad news,’ especially if employees perceive that the organization ‘shoots the messenger.’ Executives need anonymous surveys, focus groups, and reporting lines, and people need to believe that the senior leaders really want to know, if they are to report honestly on the current state of the ethical culture.

Second: communicate the importance of ethical standards

Employees need clear and consistent messages that ethics is essential to the business model, not just a poster or a website. Most businesses send countless messages about competition and financial performance, and these easily drown out other messages. In order to compete with this constant drumbeat about the short-term bottom line, the messages about ethical conduct must be just as strong or stronger and as frequent. Simply telling people to do the right thing, is not enough. They must be prepared for the types of issues that arise in their particular business and position, and they must know what to do when ethics and the bottom line appear to the in conflict. Executives should tie ethics to the long-term success of the business by providing examples from their own experience or the experiences of other successful employees.

Make sure that messages coming from executive and supervisory leaders are clear and consistent. Train employees to recognize the kinds of ethical issues that are likely to arise in their work.

Third: focus on the reward system

The reward system may be the single most important way to deliver a message about what behaviors are expected. B.F. Skinner knew what he was talking about. People do what’s rewarded, and they avoid doing what’s punished. Let’s look at the positive side first – can we really reward ethical behaviour? In the short term, we probably cannot. For the most part, ethical behavior is simply expected, and people don’t expect or want to be rewarded for doing their jobs the right way. But in the longer term, ethical behavior can be rewarded by promoting and compensating people who are not only good at what they do, but who have also developed a reputation with customers, peers, subordinates, and managers as being of the highest integrity

Perhaps even more important than rewarding ethical conduct is taking care not to reward unethical conduct.

And what about discipline? Unethical conduct should be disciplined swiftly and fairly when it occurs at any level in the organization. The higher the level of the person disciplined, the stronger the message that management takes ethics seriously.
 Fourth: promote ethical leadership throughout the firm

Recall that being a ‘moral person’ who is characterized by integrity and fairness, treats people well, and makes ethical decisions is important. But those elements deal only with the ‘ethical’ part of ethical leadership. To be ethical leaders, executives have to think about the ‘leadership’ part of the term. Providing ethical ‘leadership’ means making ethical values visible – communicating about not just the bottom-line goals (the ends) but also the acceptable and unacceptable means of getting there (the means). Being an ethical leader also means asking very publicly how important decisions will affect multiple stakeholders – shareholders, employees, customers, society – and making transparent the struggles about how to balance competing interests. It means using the reward system to clearly communicate what is expected and what is accepted. That means rewarding ethical conduct and disciplining unethical conduct, even if the rule violator is a senior person or a top producer. Find a way to let employees know that the unethical conduct was taken seriously and the employee disciplined.

Ethical cultures and ethical leaders go hand in hand. Building an ethical culture can’t be delegated.

Senior executives are extremely important. They set the tone at the top and oversee the ethical culture. But from an everyday implementation perspective, front-line supervisors are equally important because of their daily interactions with their direct reports. An ethical culture ultimately depends upon how supervisors treat employees, customers, and other stakeholders, and how they make decisions