CHAPTER 1

A System for Managing Company Ethics

We are people of plans, processes, and systems. We organize our lives around specific systems to accomplish specific tasks. Talk to a dozen people and there will be a dozen different methods to manage personal finances, household chores, vehicle maintenance, work, leisure and family time, grocery shopping, and calendar activities. There are different strokes for different folks when it comes to processes and systems for the creation and implementation of new programs in the workplace, at school and church, and at home.

In the workplace, leaders, managers, and employees have systems in place for nearly every function necessary to be productive, efficient, profitable, and to survive in a competitive and ever-changing global marketplace in order to deliver on customer needs (Burli, Kotturshettar, and Dalmia 2012; Dehghan, Shahin, and Zenouzi 2012; Ionut, Marcel, and Monica 2011; Kaushik and Khanduja 2009).¹ Companies use standardized efficiency tools such as Six Sigma, Total Quality Management, and Continuous Quality Improvement to continually improve those systems.

One glaring lack in organizational tools, plans, processes, and systems is the ability to intentionally and effectively manage company ethics. The ethical management of an organization results in the same outcomes that companies desire from quality improvement processes: productivity, profitability, and competitive advantage (Dunn 2013; Treviño, Hartman, and Brown 2000).² In addition, companies attain higher levels of employee satisfaction, commitment, comfort, and fun when managed ethically, which in turn fuels improved levels of business performance. Why then do companies lack in ethical management systems when the outcomes are so desirable?

The lack of a system to manage ethics at the corporate level could be because organizational decision makers believe that such a system is too costly or time prohibitive compared to other company priorities. Executive-level employees may not have the knowledge or the expertise to craft such a system to keep the ethical environment as a focus in the organization. Most companies cannot afford the luxury of a full-time staff position for an ethics officer. It is possible that some may believe that proper ethical behavior among employees should be intuitive, natural, and that intentionality in this area is not needed. Some may just assume that every employee knows proper ethical behavior and the difference between right and wrong in business. It is probable that many organizations sense that law-abiding behaviors are the equivalent of ethical behavior. Organizational leaders are trained in bachelor, master, and doctoral programs in many important and critical leadership and management processes; however, the understanding of ethics and how to manage and lead company ethics is usually a tangential thought represented by ethics courses that are electives and not required or ethics courses that are fewer credit hours than other business offerings. Many top-level executives have insisted that their behavior was within the boundaries of the law, while lower-level employees lost jobs and pensions from the actions of those executives. Certainly many companies have a code of ethics (COE) or a code of conduct that seems sufficient to guide company values; however, beyond a copy of the code in the policy handbook and a few posters on the walls, many companies lack a system to maintain employee accountability for and compliance to the code.

This book offers a system to effectively manage company ethics, called The Moldable Model© (MM). The MM consists of a research-based framework or model of consistent and necessary components to manage the ethical climate of any organization. Organizational decision makers will find that the MM is firm in its three-pronged framework, yet flexible in its application to any company, industry, or for- and not-for-profit sectors. The ethical system recommended in the pages that follow guides busy executives in the evaluation of current or the creation of new corporate ethical management systems (CEMSs). By using the MM, any organization can enhance executive and employee ethical behavior, employee work satisfaction, and company productivity with a distinct competitive advantage.

The Need for a CEMS

The surge into the 21st Century and the new millennium brought a sense of optimism after we knew that the world did not collapse from a computer glitch. Executives and employees returned to work on January 2, 2000 after survival of Y2K. From corporate board rooms to office cubicles, organizational employees used the leadership and management processes of direction setting, planning and budgeting, staffing and organizing, aligning staff to the new company direction through motivation, problem solving for control, and inspiring appeals to guide the needed change in direction (Kotter 1990).³ The hope and goal was for better productivity, financial performance, and competitive advantage in a global marketplace.

Unfortunately, the push for these worthy goals blinded some leaders to the ethical dimension of business. Because of success in the business world, many top leaders fell prey to a hubris, sense of impunity, loss of organizational and strategic focus, and to the push for personal gain over organizational good (Ludwig and Longenecker 1993).⁴ Several top leaders in major, global companies succumbed to the allure of success that is often the antecedent of unethical and destructive behavior. Unethical and destructive behavior from top leaders alone could not bring down a company without the aid of willing followers and organizational environments conducive to toxic leadership (Padilla, Hogan, and Kaiser 2007).⁵ A destructive leader with magnetism or charisma and a narcissistic personality could sway employees who chose to “conform” or “collude” with the leader’s personal goals (Padilla et al. 2007, 183).⁶ Without an organizational environment of checks and balances, leaders and employees could find a way to emphasize personal gain over organizational good. When these personal and organizational forces and limitations collide, the company environment is ripe for unethical behavior.

Through the actions of unethical organizational employees and the ensuing glare of social media at the start of this millennium, leadership researchers became quite interested in the study of ethics in organizations, including unethical or dark leadership. Society in general has replaced its enchantment with organizational leaders with anger, frustration, and a real sense of betrayal due to the unethical behavior of many executives (Morris, Brotheridge, and Urbanski 2005).⁷ The media glare placed on the unethical behavior of top leaders has had a positive effect—the public today longs for leaders who act ethically (Ciulla 2003).⁸ Years ago, Frankl (1959, 1984) believed that the Statue of Liberty on the East coast, which represented freedom, should be offset with a statue of responsibility on the West coast to remind us that all freedom is encompassed with huge responsibility.⁹ Organizational leaders of the last several years needed Frankl’s wisdom.

The study of leadership, including ethical leadership, has been in progress for over 100 years (Baumhart 1961; Donham 1929).¹⁰ As with any research, the study of ethical leadership has moved from basic quantitative analysis to a more sophisticated correlational analysis of action and outcome variables. Variables under study often included ethical processes such as codes, rewards and discipline, training, communication, and executive role modeling and the variables’ effect on organizational behaviors such as employee satisfaction, productivity, and job commitment (Collins 2010; Howell and Avolio 1992; Klein, Laczniak, and Murphy 2006; Trevino, Butterfield, and McCabe 1998; Valentine and Fleischman 2008; Vitell and Davis 1990).¹¹ Qualitative research in ethical leadership has also surged in the last 15 years. Researchers desire to understand the lived experiences of organizational members in the areas of ethical and unethical leadership, resulting in the rise of increased qualitative studies to understand the perceptions of employees. This recent and focused interest in ethical leadership grew exponentially due in large part to the unethical activity of several major companies during the early years of the 21st Century. Enron, WorldCom, and Tyco remain household names in the study of ethical or unethical leadership. Companies came under intense social and ethical scrutiny at the turn of this century, and that intense scrutiny continues today.

The management of company ethics, however, must be motivated by more than intense scrutiny and simply an attempt to avoid the dark leadership of past executives and that leadership’s devastation to employees and organizations. A CEMS should do more than just help companies comply with the Sarbanes–Oxley Act and to just keep organizations from legal issues, though good reasons. Research now demonstrates that some type of ethical management system has critical, positive results as well. Companies that manage internal ethics see better productivity, better business results such as financial performance and competitive advantage, and improved employee performance as employees are more satisfied with and comfortable at work while having more comfort and fun (Dunn 2013; Treviño et al. 2000).¹² Customers who receive ethical treatment are return customers (Dunn 2013).¹³ Teleological reasoning allows companies to focus on outcomes and results as motivation to be ethical.¹⁴ From a deontological ethics perspective, ethical behavior at the organizational level is the “right thing to do.”¹⁵ Zenger and Folkman (2012) found that integrity and honesty are 2 of the top 3 of 16 competencies needed by executives.¹⁶

Therefore, the leadership and management of company ethics must now take priority in direction setting and visioning of organizational goals. Company ethics must be an intentional thrust of top leaders (Treviño et al. 2000).¹⁷ No longer can ethics be a tangential thought or a sidelined activity until money and time permit. Employees, customers, and communities where organizations operate should not only expect but demand ethical corporate behavior. A CEMS is the answer for that demand.

A Research-Designed CEMS: The MM

According to research, a system to manage company ethics provided improved ethical climate, employee ethical behaviors, and company performance (Donker, Poff, and Zahir 2008).¹⁸ Treviño, Hartman, and Brown (2000) found that ethical leadership in an organization resulted in employee satisfaction, commitment, comfort, and fun, which in turn brought improved productivity and financial performance.¹⁹

The research on ethical leadership has offered many helpful tools to the management of ethics at the corporate level. To manage ethics at the corporate level, several system components have been suggested in the research literature: codes of ethics, value statements, communication of company ethics, ethical training, ethical audits, and rewards and discipline for compliance or noncompliance to company ethics (Cohen 1993).²⁰ However, the extant literature lacked a consensus for a consistent component model or framework by which any organization could encourage, monitor, and correct the ethical behavior of its employees (Dunn 2013).²¹ The literature demonstrated no consistent components for a CEMS across years of research. A consistent component model would be of great value to any organization that wished to create a new CEMS or evaluate a current CEMS. This type of tool would allow organizations to have a research-based and empirically based approach to leading and managing company ethics. A consistent component model or framework for a CEMS would also allow a foundational approach to the management of ethics, yet a flexibility to adapt each component for organizational fit. Indeed, there was a need for such a model.

In a qualitative, multiple case study approach, I researched three organizations in an attempt to find the effective CEMS with consistent components (Dunn 2013).²² The three-organization sample included a large, for-profit global organization, a large not-for-profit global organization, and a small, for-profit local organization to assure some diversity in industry, size, and sector. Data were collected from interviews with executives and employees, organizational documents, and visual tours of each organization to determine how ethics was promoted. Data analysis included single- and multiple-case comparisons of all data sources, including comparisons to the components and organizational benefits of a CEMS already found in the extant literature. Rich data streamed from this research including strong support for components and organizational benefits in the extant literature, new emerging theories of ethical leadership, and most importantly the discovery and design of a consistent component model CEMS.

I designed a consistent, component model CEMS, called the MM, from the research conducted in the three organizations (Dunn 2013).²³ The research demonstrated that the most consistent components across the sample organizations were communication, value statements, and discipline for unethical behavior. The benefits of a CEMS included employee satisfaction and commitment, employee comfort and fun, and productivity. My research determined that an organizational CEMS was good for business, it improved financial performance, and a CEMS brought distinct competitive advantage to the company. From an interview with a top-level executive, the framework for a consistent component model emerged, to which I synthesized the research to develop the MM.

The MM consists of a framework of three parts, which are the consistent components: (1) Role modeling of the company COE and value statements by both top-tier and peer-to-peer employees; (2) Context or giving employees the reasons for ethical behavior in the organization, which include the research-based reasons stated above; and (3) Accountability for company ethics, including hiring, training, communication, rewards and discipline, and ethical audits. Every organization that desires to create a new or to evaluate a current CEMS should look at the three components of the MM to determine organizational needs, additions, and/or corrections in its ethical environment. The MM offers research-based foundational tools that can be adapted to fit the specific values and processes of any organization, regardless of size, industry, or sector. The following chapters discuss the MM in detail.

Definition of Terms

The journey into designing ethical workplaces first needs clarity of the terms that are used on the road map for an effective CEMS. The following discussion and definition of terms provide the reader an understanding of the meaning and the use of specific concepts in this book. While this section offers a variety of accepted definitions for certain business and ethical terms, stipulated definitions become the foundation to guide the journey. The reader may use this section as a glossary or as a map legend to more fully comprehend how to design an ethical workplace.

Business Morals and Business Ethics

Morals and ethics are terms that are often used interchangeably in the study, teaching, and writing of ethical topics. The interchange of these terms can cause confusion or cause a loss of understanding of the uniqueness of each. It is important to understand the distinct difference between these two terms in order to effectively use these words in any arena, especially the business arena context of this book.

Morals are simply standards of right and wrong (Velasquez 2006).²⁴ The question becomes whose standards of right and wrong? The answer to that question can vary depending on the context. For some, standards of behavior originate in a belief or faith system from a supreme being.²⁵ For others, standards originate from parents or the culture into which one is born and/or lives. For all, standards of right and wrong are certainly dictated by governmental laws and by organization-specific requirements for membership into clubs and businesses in which people live, serve and work. Morals can be an integration of all of these origination sources. The stipulated definition of morals is standards of right and wrong, and for this book’s context, morals are standards of right and wrong as set by the business in which a person works. Often business morals are stated through a company COE and a policy handbook, which we might consider as the foundation of workplace morality. Some might debate that business morals and personal morals should not be all that different to necessitate this stipulated definition. Certainly, one could assume that there are universal standards of right and wrong that should be intuitive for employees. But, to assume that can cause confusion when employees each operate at their personal level of beliefs of right and wrong. It should be remembered that today’s workforce is diverse on many levels, including beliefs about standards of right and wrong. Therefore, it is critical that each company carefully state its specific standards of right and wrong or business morals in order for employees to know what is the expected behavior at work. A discussion follows later in this book as to how to use a COE as business morals or the right and wrong behavior expected of employees by an organization.

Ethics is (note the singular verb) a related, yet different term from morals. Velasquez (2006) believed that ethics is the “discipline that examines one’s moral standards or the moral standards of a society” (p. 10), and that ethics is the evaluation of standards of right and wrong as to their reasonableness and application.²⁶ Treviño and Nelson (2007) suggested that ethics is “the principles, norms, and standards of conduct governing an individual or group” (p. 13).²⁷ Ghillyer (2014) understood ethics as “the manner in which we try to live our lives according to a standard of ‘right’ or ‘wrong’ behavior”—in reciprocal thinking and behaving between persons (p. 4).²⁸ The stipulated definition of ethics is the appropriate application of standards of right and wrong to daily living. Treviño and Nelson defined business ethics as “behavior that is consistent with the principles, norms, and standards of business practice that have been agreed upon by society” (p. 16).²⁹ Ghillyer simply stated that business ethics is “the application of ethical standards to business behavior” (p. 24).³⁰ In the context of business, the stipulated definition of business ethics is the appropriate application of standards of conduct (workplace morality), influenced by law and personal and societal norms, agreed upon and practiced in the workplace. The debate considered with morals could once again engage the differences between ethics and business ethics with the same result and understanding as with morals and business morals. The stipulated definition of business ethics requires that workplaces integrate and apply sources of morals (law, personal, societal) through a collaborative effort among all employees of that organization.

In this book, company morals and ethics are synonymous with business morals and ethics. Most often, I refer to company as the descriptor versus business.

Ethical Leadership and Ethical Management

In the use of the terms, leadership and management, it is important here to note that these are processes, not positions or specific persons in an organization. Quite often, organizational members use leadership and management to denote hierarchical positions or particular roles or persons within that hierarchy. While we may call one person our leader and another person our manager, the denotation of name and role does not necessarily mean the person in that role understands leadership and management processes or how they differ.

Kotter (1990) and Rost (1993) helped separate the processes of leadership and management for a better understanding of what is needed in an organization.³¹ Leadership is an influence relationship that involves setting direction and aligning people to that direction through motivation and inspiration so that needed change can occur for the collective good. Management is an authority relationship that involves planning, budgeting, staffing, and organizing to meet company objectives through control and problem solving to maintain the status quo when the company course is good. Leadership is a group-centric and collaborative process in which influence is multidirectional. Management is a manager-centric process in which authority is top-down. Both leadership and management processes are needed in an organization; persons who are called leaders and managers may not be adept at both processes. It is important for those in supervisory positions or top-tier leadership to understand these differences and to understand personal strengths and limitations in the ability to enact these processes. When limitations exist, the individual training and the hiring of complementary personnel to mitigate those limitations are important considerations.

Understanding that leadership is an influence relationship that involves alignment and change, it is possible to entertain a stipulated definition of ethical leadership as the consistent role modeling of the appropriate application of company standards of right and wrong (workplace morality) in the daily influence of the organization. Brown, Treviño, and Harrison (2005) defined ethical leadership as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (p. 120).³² As management is an authority relationship that seeks to maintain status quo, it is possible to entertain a stipulated definition of ethical management as holding employees accountable for appropriate workplace morality through a system of consistent components that represent the organization’s values.

Ethical leadership is about the influence, motivation, and influence of employees toward appropriate behavior through the visible demonstration of company values, which we can consider as workplace morality. Ethical management, on the other hand, is about holding employees accountable for the status quo of those company values (workplace morality) through various authority-based components called a CEMS.

Organizational leaders and managers often succumb to the day-to-day operation of the company by focusing on management processes. Planning, budgeting, staffing, organizing, and problem solving engage top-tier employees in maintaining organizational status quo for the bulk of their time and day. The immediate usually supplants the expedient. Little time remains to dedicate to the leadership processes of direction setting and the alignment of personnel through motivation and inspiration to organizational vision and goals. The same can happen in the ethical leadership and management of a company. The attempt to hold employees accountable for company values through hiring, training, communication, ethical audits, rewards, and most often discipline can utilize most of a busy executive’s day. Though ethical management is a critical piece of an ethical environment, ethical leadership or influence through role modeling should never be a shelved concept. Without ethical leadership or the example set by top-tier leaders, any effort to hold employees accountable could be perceived by employees as hypocritical actions on the part of top leaders. As leadership and management are both needed organizational processes, the same is true of ethical leadership and ethical management.

The focus of this book now turns to the framework of a CEMS, called the MM: role modeling, context, and accountability. Putting the MM into organizational practice brings a balance to ethical leadership and ethical management. First, it is important to understand the context for a CEMS or the reasons why an organization should be ethical.

Chapter 1: Workplace Application Exercises

   1.  On a scale of 1 to 10 (1=irrelevant; 10=extreme focus), where does your company rate in its prioritization of ethics? What ethical activities are in place or are lacking that leads you to that rating?

   2.  If your ethical rating was 6 or below, what do you see is lacking in the ethical areas described by the MM?

   3.  If your ethical rating was 7 or above, what specific ethical activities are you doing well as described by the MM? What could your organization do better?

   4.  In 25 words or less describe the difference between ethical leadership and ethical management.

Notes

1. Burli, “Multiple Performance Measures,” 69.

Dehghan, “Service Quality Gaps & Six Sigma,” 1.

Ionut, “The Six Sigma System,” 236.

Kaushik, “Application of Six Sigma DMAIC Methodology,” 197.

2. Dunn, “The Moldable Model,” 1.

Treviño, “Moral Person and Moral Manager,” 128.

3. Kotter, “A Force for Change,” 35.

4. Ludwig, “The Bathsheba Syndrome,” 265.

5. Padilla, “The Toxic Triangle,” 176.

6. Ibid, 183.

7. Morris, “Bringing Humility to Leadership,” 1323.

8. Ciulla, “The Ethics of Leadership,” 1.

9. Frankl, “Man’s Search for Meaning,” 1.

10. Baumhart, “How Ethical are Businessmen,” 6.

Donham, “Business Ethics,” 385.

11. Collins, “Designing Ethical Organizations,” 95.

Howell, “The Ethics of Charismatic Leadership,” 43.

Klein, “Ethical Marketing,” 228.

Treviño, “The Ethical Context in Organizations,” 447.

Valentine, “Ethics Programs,” 159.

Vitell, “The Relationship Between Ethics and Job Satisfaction,” 489.

12. Dunn, “The Moldable Model,” 1.

Treviño, “Moral Person and Moral Manager,” 128.

13. Dunn, “The Moldable Model,” 1.

14. Teleological reasoning has to do with consideration of outcomes or goals.

15. Deontological has to do with “duty” and principled reasoning.

16. Zenger, “Are Women Better Leaders Than Men?”

17. Treviño, “Moral Person and Moral Manager,” 128.

18. Donker, “Corporate Values,” 527.

19. Treviño, “Moral Person and Moral Manager,” 128.

20. Cohen, “Creating and Maintaining,” 343.

21. Dunn, “The Moldable Model,” 1.

22. Ibid.

23. Ibid.

24. Velasquez, “Business Ethics,” 1.

25. The belief that a supreme being gives standards of behavior in the form of verbal or written commands is called Divine Command ethical theory.

26. Velasquez, “Business Ethics,” 10.

27. Treviño, “Managing Business Ethics,” 13.

28. Ghillyer, “Business Ethics Now,” 4.

29. Treviño, “Managing Business Ethics,” 16.

30. Ghillyer, “Business Ethics Now,” 24.

31. Kotter, “A Force for Change,” 6. Rost, “Leadership for the Twenty-First Century,” 102, 145.

32. Brown, “Ethical Leadership: A Social Learning Perspective,” 120.