Managers and Ethics
The study of ethics in management can be approached from many different directions. Perhaps the most practical approach is to view ethics as catalyzing managers to take socially responsible actions. The movement to include the study of ethics as a critical part of management education began in the 1970s, grew significantly in the 1980s, and is expected to continue growing in the twenty-first century. John Shad, chair of the Securities and Exchange Commission during the 1980s, when Wall Street was shaken by a number of insider trading scandals, recently pledged a $20 million trust fund to the Harvard Business School to create a curriculum in business ethics for MBA students. Television producer Norman Lear gave $1 million to underwrite the Business Enterprise Trust, which will give national awards to companies and “whistle blowers . . . who demonstrate courage, creativity, and social vision in the business world.”45
Figure 2.2 Chart DuPont used to track progress in reaching 2010 energy consumption goal44
The following sections define ethics, explain why ethical considerations are a vital part of management practices, discuss a workable code of business ethics, and present some suggestions for creating an ethical workplace.
A Definition of Ethics
The famous missionary physician and humanitarian Albert Schweitzer defined ethics as “our concern for good behavior. We feel an obligation to consider not only our own personal well-being, but also that of other human beings.” This meaning is similar to the precept of the Golden Rule: Do unto others as you would have them do unto you.46
In business, ethics can be defined as the capacity to reflect on values in the corporate decision-making process, to determine how these values and decisions affect various stakeholder groups, and to establish how managers can use these observations in day-to-day company management.47 Ethical managers strive for success within the confines of sound management practices, which are characterized by fairness and justice.48 Interestingly, using ethics as a major guide when making and evaluating business decisions is popular not only in the United States but also in the very different societies of India and Russia.49
Why Ethics Is a Vital Part of Management Practices
John F. Akers, former board chair of IBM, has said that it makes good business sense for managers to be ethical. Unless they are ethical, he believes, companies cannot be competitive in either national or international markets. According to Akers, a manager should not talk about ethics without talking about competitiveness. Companies cannot be competitive if they are built on cultures wherein people stab one another in the back, try to take advantage of one another, and try to steal from one another and that are based upon dishonesty. Certainly, Akers would not deny that managers should be ethical to be morally correct. He would also add, however, that managers should also be ethical as a strategy for being competitive with rival firms.50
Aflac employees volunteer at a children’s hospital which enhances Aflac’s positive public image.
Sandy Huffaker/AFLAC/AP Photo
Although ethical management practices may not be linked to specific indicators of financial profitability, conflict is not inevitable between ethical practices and making a profit. Overall, the essence of competitiveness presumes underlying values of truthfulness and fair dealing. The employment of ethical business practices can enhance overall corporate health in three important areas: productivity, stakeholder relations, and government regulation.
Productivity
The employees of a corporation constitute one major stakeholder group that is affected by management practices. When management is determined to act ethically toward stakeholders, then employees will be positively affected. For example, a corporation may decide that business ethics requires it to make a special effort to ensure the health and welfare of its employees. To this end, many corporations have established Employee Advisory Programs (EAPs) to help employees with family, work, financial or legal problems, and with mental illness or chemical dependency. These programs have even enhanced productivity in some corporations. For instance, Control Data Corporation found that its EAP reduced health costs and sick-leave usage significantly.51
Stakeholder Relations
The second area in which ethical management practices can enhance corporate health is by positively affecting “outside” stakeholders such as suppliers and customers. A positive public image can attract customers who view such an image as desirable. For example, Johnson & Johnson, the world’s largest maker of health-care products, is guided by “Our Credo,” which was announced more than 60 years ago by General Robert Wood Johnson to the company’s employees, stockholders, and members of its community. The credo stresses the idea that Johnson & Johnson sees its primary focus as being of meaningful service to doctors, nurses, patients, and mothers and fathers of all who use their products. The credo also stresses that the company constantly focuses on reducing costs in order to provide products at reasonable costs.
Government Regulation
The third area in which ethical management practices can enhance corporate health is in minimizing government regulation. Where companies are believed to be acting unethically, the public is more likely to put pressure on legislators and other government officials to regulate those businesses or to enforce existing regulations. For example, in 2010, thinking that smokeless tobacco may be a cancer-causing product, a federal government subcommittee on health held hearings to explore the impact of smokeless tobacco on the nation’s youth and its use in major league baseball.52
A Code of Ethics
A code of ethics is a formal statement that acts as a guide for the ethics of how people within a particular organization should act and make decisions. Ninety percent of Fortune 500 firms, and almost half of all other firms, have ethics codes. Moreover, many organizations that do not already have an ethics code are giving serious consideration to developing one.
Codes of ethics commonly address such issues as conflict of interest, competitors, privacy of information, gift giving, and giving and receiving political contributions or business. A code of ethics developed by Nissan of Japan, for example, barred all Nissan employees from accepting almost all gifts or entertainment from, or offering them to, business partners and government officials.54 The new code was drafted by Nissan president Yoshikazu Hanawa and sent to 300 major suppliers.55
According to a recent survey, the development and distribution of a code of ethics is perceived as an effective and efficient means of encouraging ethical practices within organizations.56 Figure 2.3 contains highlights of the code of ethics that Publix Super Markets uses to encourage ethical behavior for financial managers within the company.
Figure 2.3 Highlights of the Code of Ethics for financial managers at Publix Super Markets53
Managers cannot assume, merely because they have developed and distributed a code of ethics, that organization members have all the guidelines they need to determine what is ethical and to act accordingly. It is impossible for one code to cover all ethical and unethical conduct within an organization. Managers should thus view codes of ethics as tools that must be evaluated and refined periodically so that they will be comprehensive and usable guidelines for making ethical business decisions efficiently and effectively.57
Creating an Ethical Workplace
Managers commonly strive to encourage ethical practices, not only to be morally correct but also to gain whatever business advantage lies in projecting an ethical image to consumers and employees.58 Creating, distributing, and continually improving a company’s code of ethics is one common step managers can take to establish an ethical workplace.
Another step many companies are taking to create an ethical workplace is to appoint a chief ethics officer. The chief ethics officer has the job of ensuring that organizational ethics and values are integrated into daily decisions at all organizational levels. Such officers recommend, help implement, and reinforce strategies aimed at integrating appropriate conduct throughout all phases of company operations. Figure 2.4 lists a few characteristics that a person should have to be a successful chief ethics officer.
Another way to promote ethics in the workplace is to furnish organization members with appropriate training. General Dynamics, McDonnell Douglas, Chemical Bank, and American Can Company are examples of corporations that conduct training programs aimed at encouraging ethical practices within their organizations.59 Such programs do not attempt to teach managers what is moral or ethical but instead give them criteria they can use to help determine how ethical a certain action might be. According to the Markkula Center for Applied Ethics at Santa Clara University, managers can feel confident that a potential action will be considered ethical by the general public if it is consistent with one or more of the following ethical standards:61
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The Utilitarian Standard is a guideline that indicates that behavior can generally be considered ethical if it provides the most good for or does the least harm to the greatest number of people. Corporate activity that meets this standard produces the greatest good for and the least harm to all company stakeholders including employees and customers.
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The Rights Standard is a guideline that says that behavior is generally considered ethical if it respects and promotes the rights of others. This guideline indicates that in order to be ethical, corporate behavior must respect the dignity of human nature. Under this standard, for example, corporate action that reflects unfair labor practices like paying abnormally low wages or using child labor would be considered unethical.
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The Virtue Standard is a guideline that determines behavior to be ethical if it reflects high moral values. Behavior that is consistent with this standard is action that reflects virtues like honesty, fairness, and compassion. Examples of business behavior that reflect this standard would include honesty in advertising about the worthwhileness of a product or paying suppliers a fair price for their goods no matter how much bargaining power is held over them.
Figure 2.4 Skills needed to be a successful chief ethics officer60
Overall, managers must take responsibility for creating and sustaining conditions in which people are likely to behave ethically and for minimizing conditions in which people might be tempted to behave unethically. Two practices that commonly inspire unethical behavior in organizations are giving unusually high rewards for good performance and giving unusually severe punishments for poor performance. By eliminating such factors, managers can reduce any pressure on employees to perform unethically in organizations.
Following the Law: Sarbanes–Oxley Reform Standards
Around the turn of the century, Enron Corporation was an American energy and commodities company headquartered in Houston, Texas. Enron employed about 20,000 people and claimed revenue of about $101 billion in 2000. Because of the company’s claimed phenomenal performance in the areas of electricity, natural gas, and paper, Fortune magazine named Enron “America’s Most Innovative Company” for six consecutive years.
To the dismay of Enron stakeholders and society in general, outrageous management practices were uncovered that seemed aimed at unjustifiably maximizing the personal wealth of top managers to the detriment of the well-being of other organizational stakeholders.63 As an example, Enron management used inaccurate accounting reports to deceive employees, shareholders, legal authorities, the media, and the general public. These reports grossly overstated the condition of company performance, thereby allowing top managers to justify their inflated salaries. Upon learning of the deception, some employees were outraged, and others experienced financial disaster because they’d invested in what turned out to be worthless company stock and company retirement programs. Needless to say, managers involved in such deceitful practices were prosecuted to the full extent of the law.
Amid public outcries over such practices, the Sarbanes–Oxley Act of 2002 was passed to try to prevent such deception by publicly owned companies. The general thrust of this legislation focuses on promoting ethical conduct.64 Areas covered include maintaining generally accepted accounting practices, evaluating executive compensation, monitoring fundamental business strategies, understanding and mitigating major risks, and ensuring a company structure and processes that enhance integrity and reputation.
Managers who do not follow the stipulations of the Sarbanes–Oxley Act face significant jail time. Infractions such as engaging in securities fraud, impeding a financial investigation by regulators, and committing mail fraud can result in up to 25 years of imprisonment. The Sarbanes–Oxley Act and related infraction penalties create hope that grossly unethical behavior will be significantly discouraged in the future.
The Sarbanes–Oxley Act seems to support whistle-blowing as a vehicle for both discouraging deceptive management practices and encouraging ethical management practices. Whistle-blowing is the act of an employee reporting suspected misconduct or corruption believed to exist within the organization. A whistle-blower is the employee who reports the alleged activities. Whistle-blowers can make their reports in a number of different ways, including reporting suspected organizational wrongdoings to proper legal authorities and/or proper management authorities. The Sarbanes–Oxley Act prohibits retaliation by employers against whistle-blowers.
One of the most famous whistle-blowers of modern times is Sherron Watkins, former vice president of Enron Corporation.65 Watkins testified to Congress that she was extremely alarmed by information she had received about Enron’s finances and had warned then-chairman Kenneth Lay that investors were being duped by inflated profit statements. Watkins attempted, with no success, to persuade Lay to restate and reissue corporate financial statements after eliminating accounting misrepresentations. Enron, once the seventh-largest corporation in the United States, declared bankruptcy in December 2001. The bankruptcy cost thousands of employees their jobs and retirement pensions, and investors lost millions of dollars. Perhaps based primarily on Watkins’s testimony, Lay was charged and found guilty on six criminal counts of fraud. Lay died at age 64 while awaiting sentencing for his Enron conviction.66
Ethics abuses at major corporations and other highly publicized business missteps have highly sensitized Americans to greed and corporate corruption. Business scholars see ethics remaining a hot topic for years to come.67