Institutionalising Institutionalising EthicsEthics

Leadership and StructureLeadership and Structure

INSTITUTIONALISINGINSTITUTIONALISINGETHICS IN CORPORATIONSETHICS IN CORPORATIONS

TWO BASIC RULES:TWO BASIC RULES:

1. Identify (and state) your rules of operation 1. Identify (and state) your rules of operation clearlyclearly

2. Avoid organisational hypocrisy2. Avoid organisational hypocrisy

UNDER THESE GENERAL RULES CAN BE GROUPED UNDER THESE GENERAL RULES CAN BE GROUPED THE FOLLOWING SPECIFIC RULES:THE FOLLOWING SPECIFIC RULES:

1.1. Leadership publicly committed to ethics in actions as Leadership publicly committed to ethics in actions as well as words.well as words.

2.2. Develop policies and procedures for addressing Develop policies and procedures for addressing unethical behaviour.unethical behaviour.

3.3. Develop a code of ethics and communicate it to staff Develop a code of ethics and communicate it to staff and public. Use it in decision making and ethics and public. Use it in decision making and ethics training. training.

4.4. Institute an ethics office to field ethics questions; to Institute an ethics office to field ethics questions; to monitor compliance with ethical objectives and monitor compliance with ethical objectives and employee perceptions; and to recommend revision of employee perceptions; and to recommend revision of the code, policies and procedures.the code, policies and procedures.

Institutionalising ethics 2Institutionalising ethics 2

5. Adequately resource the ethics office.5. Adequately resource the ethics office.

6. Develop ethics training programs.6. Develop ethics training programs.

7. Reward ethical behaviour.7. Reward ethical behaviour.

8. Punish unethical behaviour.8. Punish unethical behaviour.

9. Do not place employees in competitive positions 9. Do not place employees in competitive positions where this can be avoided.where this can be avoided.

10. Do not place individuals under avoidable ethical 10. Do not place individuals under avoidable ethical strain: group decisions are more likely to be ethically strain: group decisions are more likely to be ethically safe and transparent than individual ones.safe and transparent than individual ones.

Implications for managementImplications for management

Successful managers have:Successful managers have: Traits of the headTraits of the head - i - initiative, co-nitiative, co-

operativeness, flexibility, and coolness operativeness, flexibility, and coolness under pressureunder pressure..

At the expense of At the expense of Traits of the heart Traits of the heart -- honesty, friendliness, honesty, friendliness,

compassion, generosity, and idealismcompassion, generosity, and idealism..

Michael MaccobyMichael Maccoby

Emotional detachment and moral Emotional detachment and moral disengagementdisengagement

Note Note the responses of NASA to Challenger, of the responses of NASA to Challenger, of Union Carbide to Bhopal, of Exxon to the Exxon Union Carbide to Bhopal, of Exxon to the Exxon Valdez disaster, of Bearings Bank to Nick Valdez disaster, of Bearings Bank to Nick Leeson’s dealingsLeeson’s dealings,, of Alan Bond to the Tooheys of Alan Bond to the Tooheys hotel leaseholdershotel leaseholders, of Jodie Rich to One Tel, of , of Jodie Rich to One Tel, of Jeffrey Skilling to investors, of Ray Williams to Jeffrey Skilling to investors, of Ray Williams to HIH, of Gordon Gekko to the world …HIH, of Gordon Gekko to the world …

Jackall quotes a manager in Jackall quotes a manager in Moral MazesMoral Mazes

““What is right in the corporation is not what What is right in the corporation is not what is right in a man’s home or in his church. is right in a man’s home or in his church. What is right in the corporation is what the What is right in the corporation is what the guy above you wants from you.guy above you wants from you. That’s That’s what morality is in the corporation.”what morality is in the corporation.”

Jackall’s five rules of Jackall’s five rules of corporate morality (survival)corporate morality (survival)

(1)(1) Don’t go around your boss; Don’t go around your boss;

(2)(2) even if your boss invites dissent, tell him or her even if your boss invites dissent, tell him or her what he or she wants to hear; what he or she wants to hear;

(3)(3) if the boss wants something dropped, drop it; if the boss wants something dropped, drop it;

(4)(4) anticipate the boss’s wishes - don’t force him anticipate the boss’s wishes - don’t force him or her to act the boss; or her to act the boss;

(5)(5) do not report what the boss does not want do not report what the boss does not want reported, cover it up and remain silent.reported, cover it up and remain silent.

Goodpaster’s critique of Goodpaster’s critique of goal fixationgoal fixation

He calls “He calls “the unbalanced pursuit of the unbalanced pursuit of goals by an individual or group” goals by an individual or group” teleopathyteleopathy. This is . This is

a suspension of “on-line” moral judgement a suspension of “on-line” moral judgement as a practical force in the life of an as a practical force in the life of an individual or group. It substitutes for the individual or group. It substitutes for the call of conscience the call of decision call of conscience the call of decision criteria from other sources: winning the criteria from other sources: winning the game, achieving the goal, following the game, achieving the goal, following the rules laid down by some framework rules laid down by some framework external to ethical reflection. external to ethical reflection.

Roles … againRoles … again

No licence to act unethicallyNo licence to act unethically Roles add to responsibilities, they do not Roles add to responsibilities, they do not

exemptexempt Suggest that one is impersonating another Suggest that one is impersonating another

like an actor – that the function of the role like an actor – that the function of the role is what matters and the occupant doesn’tis what matters and the occupant doesn’t

Contribute to lost responsibility in Contribute to lost responsibility in organisationsorganisations

Consider the structure of Consider the structure of roles in organisationsroles in organisations

‘‘Rather than ask “What was going on with Rather than ask “What was going on with those people to make them act that way?”, we those people to make them act that way?”, we ask, “What was going on in that organization ask, “What was going on in that organization that made people act that way?”’that made people act that way?”’

James WatersJames Waters

Asking this does not relieve Asking this does not relieve individuals of responsibilityindividuals of responsibility

This question moves the focus to the This question moves the focus to the incentives for good behaviour, the incentives for good behaviour, the disincentives against bad behaviour, and disincentives against bad behaviour, and the culture of risk or safety, retribution or the culture of risk or safety, retribution or support in which individuals and teams support in which individuals and teams act.act.

A sick culture exhibits the A sick culture exhibits the following featuresfollowing features

1. There is a "kill the messenger" ethos in the organisation - justifies 1. There is a "kill the messenger" ethos in the organisation - justifies distortion and concealment of information.distortion and concealment of information.

2. There is a low degree of confidence in the accuracy of internal reports.2. There is a low degree of confidence in the accuracy of internal reports.3. Despite claims to doing the right thing, in the last analysis, top management 3. Despite claims to doing the right thing, in the last analysis, top management

does the most expedient thing. does the most expedient thing.4. Employees do not know of or refer to written ethics policies .4. Employees do not know of or refer to written ethics policies .5. The operative value of the organisation is: if it's legal it's ethical. 5. The operative value of the organisation is: if it's legal it's ethical. 6. Top management's stated concern for ethics is for public relations.6. Top management's stated concern for ethics is for public relations.7. Managers while basically truthful are willing to deceive in order to 7. Managers while basically truthful are willing to deceive in order to

accomplish organizational or personal goals. accomplish organizational or personal goals. 8. Managers do not believe there is an obligation to be candid where could 8. Managers do not believe there is an obligation to be candid where could

harm personal or organizational goals.harm personal or organizational goals.9. People who ignore ethics but produce bottom line results get promoted.9. People who ignore ethics but produce bottom line results get promoted.

How do you discover this?How do you discover this?

An ethics audit. An ethics audit.

An ethics audit is a survey of the members An ethics audit is a survey of the members of an organization to test their perceptions of an organization to test their perceptions of the health of its ethical culture.of the health of its ethical culture.

Building an ethical culture begins with an Building an ethical culture begins with an audit of the prevailing culture.audit of the prevailing culture.

Take Enron’s culture, Take Enron’s culture, mirrored in its traders …mirrored in its traders …

Goodpaster, item 5 - The operative value of the organisation Goodpaster, item 5 - The operative value of the organisation is: if it's legal it's ethical.is: if it's legal it's ethical.

If California’s deregulation was not satisfactory, does that If California’s deregulation was not satisfactory, does that entitle Enron and its traders to manipulate the market? Is this entitle Enron and its traders to manipulate the market? Is this ethical? ethical?

Does legal conduct somehow get transformed into ethical Does legal conduct somehow get transformed into ethical conduct by circumstances? conduct by circumstances?

Does the conduct of the traders show any recognition of ethics Does the conduct of the traders show any recognition of ethics or the humanity of others or of any value beside power and its or the humanity of others or of any value beside power and its manifestations?manifestations?

Reflect on the attitudes of the traders: Reflect on the attitudes of the traders: they show a lot.they show a lot.

Kevin: So the rumour’s true? They’re fuckin’ takin’ all the money back Kevin: So the rumour’s true? They’re fuckin’ takin’ all the money back from you guys? All those money you guys stole from those poor from you guys? All those money you guys stole from those poor grandmothers in California?grandmothers in California?

Bob: Yeah, grandma Millie, man. But she’s the one who couldn’t Bob: Yeah, grandma Millie, man. But she’s the one who couldn’t figure out how to fuckin’ vote on the butterfly ballot.figure out how to fuckin’ vote on the butterfly ballot.

Kevin: Yeah, now she wants her fuckin’ money back for all the power Kevin: Yeah, now she wants her fuckin’ money back for all the power you’ve charged right up - jammed right up her ass for fuckin’ $ 250 a you’ve charged right up - jammed right up her ass for fuckin’ $ 250 a megawatt hour. Laughtermegawatt hour. Laughter

These guys were beating up These guys were beating up grandmothers, not regulators, legislators grandmothers, not regulators, legislators or legal draftsmen.or legal draftsmen.

Hans Friedrich was in the SSHans Friedrich was in the SS

He shot Jewish women and children. He shot Jewish women and children. When asked what he felt when he pulled When asked what he felt when he pulled the tigger, he replied “nothing”. He just the tigger, he replied “nothing”. He just concentrated on the job of aiming straight.concentrated on the job of aiming straight.

This attitude is a problem for anyone This attitude is a problem for anyone seized by teleopathy, not just those whose seized by teleopathy, not just those whose goals are intrinsically evil.goals are intrinsically evil.

Attending to the Attending to the psychological contractpsychological contract

When people join an organization they enter into When people join an organization they enter into what has been called a "psychological contract" - this what has been called a "psychological contract" - this is the unspoken set of agreements between employees is the unspoken set of agreements between employees and the organisations that employ them. and the organisations that employ them.

One writer has argued that "the psychological One writer has argued that "the psychological contract may be the central determinant in whether a contract may be the central determinant in whether a person behaves ethically" (Sims 1991, 495). person behaves ethically" (Sims 1991, 495).

Hence, the psychological contract can be a licence Hence, the psychological contract can be a licence for unethical conduct. for unethical conduct.

LeadershipLeadership

Studies show that the single most important factor in Studies show that the single most important factor in employees adhering to ethical standards is example employees adhering to ethical standards is example from the top. This is a more potent than peer pressure, from the top. This is a more potent than peer pressure, or background. or background. Managers ought to respond to problems identified in Managers ought to respond to problems identified in an ethics audit by making public statements about the an ethics audit by making public statements about the organization's ethical commitments, the ethos it is organization's ethical commitments, the ethos it is working to establish and its expectations of working to establish and its expectations of employees.employees.

Leadership MeansLeadership Means

Identifying organisational values

Leaders following these values themselves

Promoting values to others

Ensuring values reflected in all actions & decisions

Having the courage to insist on ethical conduct

Leadership meansLeadership means

authorising and empowering others to behave ethically

modelling ethical behaviour and decision-making

establishing practices which clearly demonstrate a commitment to ethical values and behaviour

trust

trust

responsibility

responsibility

trustresponsibility

Ethical Empowerment / Ethical AuthorisationEthical Empowerment / Ethical Authorisation

Top-Level(Department Head, CEO)

Next Level(Supervisors, Managers, …)

Next Levels

Organisation

Leadership in industryLeadership in industry

If no one leads, no one follows and there will be If no one leads, no one follows and there will be no change. no change.

Mercedes Benz developed and patented the Mercedes Benz developed and patented the passenger safety cell, but gave it away to other passenger safety cell, but gave it away to other manufacturers.manufacturers.

This is not inconsistent with Benz’s culture of This is not inconsistent with Benz’s culture of product development and safety.product development and safety.

Contrast this with Ford’s development of the Contrast this with Ford’s development of the Pinto and its attitude to safety issues in the Pinto and its attitude to safety issues in the name of competition.name of competition.

The PintoThe PintoIn 1968 Ford adopted plan for a In 1968 Ford adopted plan for a subcompact on a 2x2x2 plan (subcompact on a 2x2x2 plan (2,000 2,000 poundspounds,, $2,000 $2,000 in 2 years) in 2 years)..

In pre-launch tests, Ford discovered that In pre-launch tests, Ford discovered that rear end collisions propelled the gas tank rear end collisions propelled the gas tank onto the real axle and unless modified, the onto the real axle and unless modified, the car always caught fire.car always caught fire.

Ford did not modify the Pinto. Why?Ford did not modify the Pinto. Why?

Ford’s Cost/Benefit AnalysisFord’s Cost/Benefit Analysis

Ford applied a generic cost/benefit Ford applied a generic cost/benefit analysis to all kinds of accident based on analysis to all kinds of accident based on National Highway Traffic Safety National Highway Traffic Safety Administration Administration estimates of the worth of a estimates of the worth of a human life – around $200,00 – and its own human life – around $200,00 – and its own figures on deaths from car accidents. The figures on deaths from car accidents. The analysis is as follows:analysis is as follows:

Future productivity losses Future productivity losses Direct: $132,000 Direct: $132,000 Indirect: 41,000 Indirect: 41,000 Medical Costs - Hospital: 700; Other: 425 Medical Costs - Hospital: 700; Other: 425 Property Damages: 1,500 Property Damages: 1,500 Insurance administration: 4,700 Insurance administration: 4,700 Legal and court expenses: 3,000 Legal and court expenses: 3,000 Employer losses: 1,000 Employer losses: 1,000 Victim's pain and suffering: 10,000 Victim's pain and suffering: 10,000 Funeral: 900 Funeral: 900 Assets (lost consumption):5,000 Assets (lost consumption):5,000 Miscellaneous accident costs: 200 Miscellaneous accident costs: 200   

Total per fatality $200,725Total per fatality $200,725

Benefits Benefits 180 burn death, 180 serious burn injuries, 2,100 180 burn death, 180 serious burn injuries, 2,100

burned vehicles burned vehicles Unit cost: $200,000 per death, $67,000 per injury, Unit cost: $200,000 per death, $67,000 per injury,

$700 per vehicle $700 per vehicle Total Benefit: (180 x $200,000) + (180 x $67,000) + Total Benefit: (180 x $200,000) + (180 x $67,000) +

(2,100 x $700) = $49.5 mil(2,100 x $700) = $49.5 mil. .

  CostsCosts Sales: 11 million cars, 1Sales: 11 million cars, 1..5 million light trucks 5 million light trucks Unit cost: $11 per car, $11 per truck Unit cost: $11 per car, $11 per truck Total cost: 12.5 million x $11 = $137.5 millionTotal cost: 12.5 million x $11 = $137.5 million

On this analysis, Ford decided not to modify the Pinto On this analysis, Ford decided not to modify the Pinto chassis.chassis.

In In 1978 1978 in in Indiana, Indiana, aa Ford Pinto Ford Pinto with three young with three young women aboard waswomen aboard was struck struck inin the rear the rear and all three and all three burned to deathburned to death.. This was only one of a number of This was only one of a number of such incidents, but Ford was indicted this time.such incidents, but Ford was indicted this time.

The judge instructed the jury that Ford would be guilty of The judge instructed the jury that Ford would be guilty of wrongful death if it could be shown to have been wrongful death if it could be shown to have been indifferent to the dangers of the Pinto.indifferent to the dangers of the Pinto.

Ford was acquitted.Ford was acquitted.

Moral analysisMoral analysis

Did the end justify the means?Did the end justify the means? Was Ford’s price of a human life Was Ford’s price of a human life

defensible?defensible? Was Ford’s cost benefit analysis Was Ford’s cost benefit analysis

conducted ethically?conducted ethically?

Law and regulationLaw and regulation

Lobby for a regulatory environment Lobby for a regulatory environment appropriate to the times. A good company appropriate to the times. A good company don’t have to be ethical alone and lose don’t have to be ethical alone and lose competitive advantage because it is competitive advantage because it is ethical.ethical.

Self-regulate and be firm about it. Codes Self-regulate and be firm about it. Codes are only one form of this. Policies and are only one form of this. Policies and procedures complement ethical directives procedures complement ethical directives and exhortations.and exhortations.

CODESCODES

Rule of lawRule of law Common floorCommon floor State fundamental valuesState fundamental values Can be codes of conduct or ethics or hybridCan be codes of conduct or ethics or hybrid Must be used frequently to be effectiveMust be used frequently to be effective Should be part of induction and developmentShould be part of induction and development Must cover whole organisationMust cover whole organisation Can be developed at topCan be developed at top

Code of EthicsCode of Ethics Code of ConductCode of Conduct

generalgeneral

values / principlesvalues / principles

judgmentjudgment

““empowering”empowering”

““aspirational”aspirational”

specificspecific

prescriptions / prescriptions / directivesdirectives

uniformityuniformity

enforceable enforceable statement of statement of something specificsomething specific

Use examplesUse examples

Reward good behaviour and never punish it, Reward good behaviour and never punish it, even if brings problems - Sherron Watkins; even if brings problems - Sherron Watkins; Cynthia Cooper. Cynthia Cooper.

Recognise good conduct and use it in staff Recognise good conduct and use it in staff training.training.

Punish poor behaviour and never reward it, even Punish poor behaviour and never reward it, even if it brings results - Enron.if it brings results - Enron.

Use examples of ethical failure in training, but Use examples of ethical failure in training, but balance them with examples of excellence.balance them with examples of excellence.

An aid to clarity:An aid to clarity:Decision modelsDecision models

Do NOT make the decision for youDo NOT make the decision for you Document the decision and the processDocument the decision and the process Make plain what values are sacrificedMake plain what values are sacrificed Aid in moral reasoningAid in moral reasoning Objectify moral reasoning and allow an Objectify moral reasoning and allow an

example to be setexample to be set

LAURA NASH’S MODEL OF LAURA NASH’S MODEL OF ETHICAL DECISION MAKINGETHICAL DECISION MAKING

1.1. Have you defined the problem accurately?Have you defined the problem accurately?2.2. How would you define the problem if you stood How would you define the problem if you stood

on the other side of the fence?on the other side of the fence?3.3. How did this situation occur in the first place?How did this situation occur in the first place?4.4. To whom and to what do you give your loyalty To whom and to what do you give your loyalty

as a person and as a member of the as a person and as a member of the organisation?organisation?

5.5. What is your intention in making this decision?What is your intention in making this decision?

6. How does this intention compare with the probable 6. How does this intention compare with the probable results?results?7. Whom could your decision or action injure?8. Can you discuss the problem with the affected parties before you make your decision?9. Are you confident that your position will be as valid over a long period of time as it seems now?10. Could you disclose without qualm your decision or action to your boss, your CEO, your family, society as a whole?11. What is the symbolic potential of your action if understood? If misunderstood?12. Under what conditions would you allow exceptions to your stand?

Laura Nash, “Ethics without the sermon”, Harvard Business Review, 59, 1981, 79-90.

Summary of what is to be Summary of what is to be donedone

CodesCodes Leadership & Leadership & mentoringmentoring

Ethics training Ethics training Incentives and Incentives and disincentivesdisincentives

Ethics officersEthics officers HotlinesHotlinesCommitteesCommittees OmbudsmanOmbudsmanNewsletters Newsletters Performance standardsPerformance standards

These all support a culture of ethical These all support a culture of ethical excellenceexcellence

Whistleblowing: a last resortWhistleblowing: a last resort

Public exposure of a danger to public interestPublic exposure of a danger to public interest Permitted when a serious issue is not addressed Permitted when a serious issue is not addressed

within an organisationwithin an organisation Not internalNot internal Involves a betrayal of kindsInvolves a betrayal of kinds Is a costly remedyIs a costly remedy Motives of whistleblower not centralMotives of whistleblower not central Difficult to legislate protection forDifficult to legislate protection for

External support for External support for whistleblowing difficultwhistleblowing difficult

Protected disclosures in Australasia have Protected disclosures in Australasia have not resulted in more than a handful of not resulted in more than a handful of charges and no successful prosecutions.charges and no successful prosecutions.

General distrust of whistleblowers despite General distrust of whistleblowers despite legislated protection.legislated protection.

Whistleblowers’ associations can be Whistleblowers’ associations can be unhelpful.unhelpful.

Criteria for legitimate Criteria for legitimate whistleblowingwhistleblowing

There is an immediate and serious issue There is an immediate and serious issue of public concern.of public concern.