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CBEB3101 Business Ethics Lecture 5

Semester 1, 2011/2012Prepared by Zulkufly Ramly

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Topic 5Culture, Leadership and

Ethics

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Contents of Topic 5

• Corporate culture and ethical climate

• Importance of ethical climate

• Compliance-based culture

• Integrity-based culture

• Ethics programme• Ethical leadership• Moral person versus

moral manager 3

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Topic 5 Learning Outcomes

1. Explain the importance of corporate culture in shaping the decision making process within an organisation

2. Describe the consequences of unethical culture

3. Differentiate between a compliance-based culture and an integrity-based culture

4. Briefly explain the elements of ethics programme

5. Explain the role of corporate leadership in establishing ethical culture

6. Describe the two pillars of ethical leadership

7. Distinguish between ethical and unethical leaders

Shared values, ideas, beliefs, customs, traditional practices that help define

and guide normal behavior for everyone who works in a company

Corporate culture

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Hence, corporate culture must have a strong ethical focus

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Importance of corporate culture

Individuals can be hindered or helped in making the right, or

the wrong, decision by the expectations, values, and

structure of the organization in which they live and work

Decision-making within a firm will be influenced, limited, shaped and in some cases virtually

determined, by the corporate culture of the firm

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Ethical culture

Shared perception and understanding

among employees of what is and is not

acceptable behavior, norms, practices or procedures in an

organisation

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• Top management of Johnson & Johnson (J&J) believed that by putting customers first enabled the achievement of shareholders’ objectives

• In a product crisis in 1982 where 7 people died after taking Tylenol tablet

• Did not know how the bottles were contaminated by a deadly chemical BUT the CEO took a quick action to recall ALL bottles sold in Chicago for concern of consumers safety

• Investigation revealed J&J was not responsible for the contamination – an act of sabotage

• For years – J&J and its employees always strive to give priority to customers’ interest first

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Example of ethical culture

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Creates presumption that “anything goes”

Destroys long-term sustainability

Reinforces “every personfor him/herself”

Absence of ethical culture

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NASA’s bad safety culture and organizational structure were important contributing factors of the disaster

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Lessons to be learned: Culture, gone wrong, can

be devastating

Done right - central to survival

Effective cultures are all about ethical values

Culture is not just impacted by a few top executives but by everyone at an organization

Case example - Columbia Disaster in 2003

• Acceptance or legality as a standard of behavior

• Bottom-line mentality, expectations of loyalty and conformity

• Absence of ethical leadership• Objectives that overemphasize profits• Insensitivity toward how subordinates

perceive pressure to meet goals• Inadequate formal ethics policies

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Questionable Behaviors of Superiors or Peers

• To improve quality of ethical performance – need to change the culture - make ethics a part of everyday decision-making

• To do so means institutionalizing ethics or building ethics safeguards into everyday routines

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Building Ethics Safeguard

Seeks to avoid legal sanctions

Emphasizes threat of detection and punishment to promote lawful employee behavior

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Two Ethics Approaches

Combine concern for law with emphasis on employee responsibility for ethical conduct

Employees instructed to act with integrity and conduct business dealings honestly

Integrity-basedCompliance-based

Both approaches have been found to reduce unethical conduct, but in somewhat different ways

IntegrityUpright, reliable and

unaffected set of values

or being straightforward in personal conduct

and business dealings

as opposed to

being dishonest, opportunistic and

untrustworthy14

Narrow focus

• meeting legal and regulatory requirements;

• minimizing risks of litigation and indictment;and

• improving accountability mechanisms

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Integrity-basedCompliance-based

Broader & more expansive

• maintaining brand & reputation;

• recruiting and retaining desirable employees;

• creating a better working environment for employees; and

• doing the right thing in addition to doing things right

Differences in Goals

• Top management commitment and involvement

• Ethics code or policies

• Ethics training

• High-level ethics personnel

• Effective communication

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• Ethical auditing

• Ethics helpline and hotline

• Whistleblowing procedures and protection

• Disciplinary measures

• Inclusion of ethical conduct in the evaluation of employee performance

Key Elements for Ethics Programmes

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Code of Ethics

A written document that explicitly states what acceptable and

unacceptable behaviours are for all

employees

Receiving gifts

Giving gifts

Protecting proprietary information

Environmental issues

Respect for privacy

Discrimination

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Ethical codes: Frequently Addressed Topics

General conduct

Sexual harassment

Kickbacks

Avoidance of conflicts of interest

Employee theft

Proper use of assets

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An organization is only as ethical as

its leaders, and only as ethical as its leaders can encourage their followers to be

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• To cultivate values, expectations, beliefs and patterns of behavior that best and most effectively support ethical decision-making

• Leaders are charged with this duty in part because stakeholders are guided to a large extent by the “tone at the top”

• Leadership sets the tone through other mechanisms such as the dedication of resources

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Role of the Leader in Corporate Culture

• The top management team sets the right example by behaving ethically and emphasizing on ethical values

• Encouraged and instilled ethical values among the employees

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‘Right tone at the top’

Johnson & Johnson … The CEO had set the ‘right tone at the top’ that is …

Only when customers were happy then interest of shareholders would be served

To put customers’ interest and safety first in whatever they do

• If a leader is perceived to be shirking her or his duties, misusing corporate assets, misrepresenting the firm’s capabilities, or engaged in other inappropriate behavior,

• Stakeholders receive the message that this type of behavior is not only acceptable, but perhaps expected and certainly the way to get ahead in that organization

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Two pillars of ethical leadership

Moral person

Moral manager

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Moral person

Behaviours

Do the right thing, concern for people, being open, personal morality

Decision making

Hold on to values, objective/fair, concern for society, follow ethical

decision rules

Traits

Integrity, honesty, trustworthiness, competence, respect

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Rewards and discipline

Communicating about ethics and values

Role modeling through visible action

Moral manager

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Unethical leader

Has the core ethical traits of behaviour and decision making of a moral person

Has the ability to use the ethical traits and transfer them to others

Is a weak moral person and manager

Has a tendency to reward his/her own self-interests

Encourage employees to support or engage in unethical activities

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Ethical leader

Articulate and embody the purpose and values of the organization

Focus on organizational success rather than on personal ego

Find the best people and develop them

Create a living conversation about ethics, values, and value for stakeholders

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Ethical Leadership Characteristics

Take a charitable understanding of others’ values

Make tough calls while being imaginative

Know the limits of the values and ethical principles they live

Connect the basic value proposition to stakeholder support and societal legitimacy

Frame actions in ethical terms