United StatesDepartment ofAgriculture

Rural Business-CooperativeService

RBS ResearchReport 151

Strengthening EthicsWithin AgriculturalCooperatives

Abstract Cooperatives as distinct forms of business rely upon members to work togethertowards collective goals. Trust lies at the heart of cooperation and provides the basisfor communication that is essential for members to seek mutual benefit. Ethics pro-vides the foundation for trust that must be present for cooperation to occur. This reportexplains why ethics is important to the success of cooperatives and what boards ofdirectors and managers can do to strengthen it. Emphasis upon ethical business con-duct may help distinguish cooperatives from other types of business while at the sametime reinforcing membership commitment and loyalty.

,-Strengthening Ethics Within Agricultural Cooperatives

Paul Lasley, Department of SociologyC. Phillip Baumel, Department of EconomicsRonald Deiter, Department of EconomicsPat Hipple, Department of SociologyIowa State University

RBS Research Report 151

February 1997

This report originated in a series of informal discussions between the two seniorauthors of this report and Jerry Van Der Kamp, AGRI Industries, Inc., West DesMoines, Iowa, and Arthur Beenken, manager, Farmers Cooperative Society, Wesley,Iowa. The purpose was to discuss current and expected changes in the grain trans-portation and distribution system. However, each meeting ended in a discussion of aperceived weakening of the ethics in the grain distribution system, the farmer coopera-tive system, and agriculture in general. These discussions made it clear that, if ethicsin farmer cooperatives have indeed declined and need to be strengthened, these ethi-cal issues and problems must be openly discussed by cooperative directors, man-agers, employees, and members.

This prompted a proposal to USDA’s Rural Business-Cooperative Service to fund astudy on the ethical concepts, problems, and possible solutions to the perceiveddeclining ethics in farmer cooperatives. We were joined in this effort by Iowa StateUniversity Professor Ronald Deiter and Ms. Pat Hipple, a graduate student in the uni-versity’s Department of Sociology, who did much of the library research on ethical the-ory and concepts.

Many people made this report possible. Numerous cooperative directors, managers,and employees spent considerable time in focus groups and discussion sessions. Weprofited immensely from their insights and suggestions and hope this report accuratelyreflects their concerns. We sincerely hope this report meets the expectations of JerryVan Der Kamp and Arthur Beenken who first called our attention to the need toaddress how cooperatives might strengthen their ethics.

Contents Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2 What Is Ethical in Business? . . . . . . . . . . . . . . . . . . .

Chapter 3 Agricultural Cooperatives and Business Ethics . . . . .

Chapter 4 What Members, Managers, and Directors Say About

Chapter 5 Tools To Improve Ethical Conduct in Cooperatives . .

Chapter 6 Materials for Ethics Workshop . . . . . . . . . . . . . . . . .

Appendix Background Materials . . . . . . . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Related Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Ethics .......... 15

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Highlightsl Ethical issues particularly related to the business ethics of day-to-day decision mak-

ing within agricultural cooperatives are identified.

l Ethical behavior builds trust which, in turn, sets a foundation for communication,commitment, loyalty, and cooperation.

l Cooperatives are challenged to distinguish themselves from other organizations andto strengthen their competitive advantages by being leaders in developing andemphasizing ethical business behavior.

l Cooperative leaders are presented with an analytical framework for determining theethicality of their cooperative business decisions, which should help them to avoidpotentially unethical and embarrassing positions and decisions.

l Ethical versus moral versus legal behaviors are discussed.

l Reasons why ethical behavior builds successful cooperatives are identified.

l Farmer opinionand a possible

surveys indicate that producerserosion of ethical behavior.

are concerned about et hical issues

l Results of focus group meetings with cooperative managers and directors identifyseveral ethical issues that leaders often encounter and have to address.

l Forces and pressures that may promote or causeleaders or cooperative members are discussed.

unethical behavior by cooperative

l Cooperative leaders face critical questions to ask and danger signs to look for indetermining if their own organization is at ethical risk.

l A step-by-step procedure is presented for use by cooperative leaders who want tomaintain or improve the ethical conduct of their cooperative businesses.

l Guidance is provided for cooperative leaders who want to develop a code of ethicsthat is appropriate for their cooperative businesses.

l A series of practical exercises for facilitating discussion and understanding of ethicalissues on an individual cooperative basis have been developed and are included forcooperatives wishing to conduct meetings, discussion groups, conferences, etc., onethics for employees, directors, and even members.

Strengthening Ethics WithinAgricultural Cooperatives

Chapter 1 n Introduction

“When people accept responsibility for their own con-duct and for the well-being of others, ethics serves tostabilize society. Ethical leadership is the antidote tothe despair and cynicism that are crushing our spiritand clouding our future. Ethics is our hope.”

Gary Edwards

Thomas Jefferson once wrote, “Cultivators of theearth are the most valuable citizens. They are themost vigorous, the most independent, the most

virtuous, and they are tied to their country, and wed-ded to its liberty and interests by the most lastingbonds” (USDA, 1937).

There are numerous examples and anecdotal evi-dence that supports Jefferson’s arguments for agrarianvalues and ethics. The Protestant work ethic and com-mitment to work has had an important cultural impact.The work ethic is rooted in the belief that workinghard, saving, thrift, and belief in God are evidence of agood moral character. Prospective employers common-ly seek farm-reared youth because of their work ethicand rural values. Rural values are often associated withan emphasis upon family, community, and church.

Differences between rural and urban crime statis-tics, percent population on welfare, school dropoutrates, alcohol and drug abuse, and family violencerates are often cited as further evidence that rural resi-dents have higher ethical and moral standards.

On the other hand, agricultural history containsmany examples of unethical and, in some cases, illegalbehavior. The settlement period and the westwardmigration of pioneer families are characterized withmany illustrations of unethical behavior includingland frauds, broken treaties with Native Americans,claim jumping, squatter rights, land struggles betweenthe ranchers and sod busters, denial of human rightsin the case of the institution of slavery, and religiousintolerance that resulted in the Mormons fleeing to theGreat Salt Lake.

In many instances, unethical behavior was woveninto the very fabric of rural culture. For example, horsetraders and land speculators were generally not trust-ed; nevertheless they were accepted because they pro-vided necessary goods and services. Some of the mostnotorious figures from the pioneer or frontier periodwere people of questionable ethics. Justice in the fron-tier period was often settled by who was the best shot,who could afford the best lawyer, who could bestinfluence the judge, or who could buy the jury. Despitedeeply held beliefs that rural people, and especiallyfarmers, provide the moral fiber to society, there isample historical evidence that ethics were often sec-ondary to other motives.

Many believe ethical standards and moral princi-ples have declined in recent years in rural America.Several factors may account for the perceptions thatrural ethics have changed. It may indeed be true thatethical standards have declined. Some also argue thatethical standards have not declined, but rather, societalexpectations have increased. Behavior once acceptableis no longer permitted. Other possible explanations arethat, as a society, we are more sensitive to ethicalbehavior because we are exposed to more media atten-tion about ethics and morals; or that perhaps ethicaldiscussions are part of a larger social movementtowards a spiritual renewal. Clergy, politicians, educa-tors, and the media have devoted increased attentionto how to improve ethical standards.

The 1980s have been characterized by many asthe decade of greed in which Wall Street brokers,financial tycoons, and leveraged buyouts were theicons of the decade. Perhaps the discussions of declin-ing ethics reflects some of the excesses of the previousdecade. Ethics seem to be taking on a more importantrole in the everyday public lives of everyone. Differingviews on what is ethical, what is meant by ethicalbehavior, and how ethics and morals differ suggestmore attention should be devoted to understandingwhat constitutes ethical business conduct within andamong cooperatives.

What Is the Problem?This project explores some common ethical issues

in agriculture with particular attention to businessethics within agricultural cooperatives. It also offerssome suggestions on how to improve ethical stan-dards. The paradigm guiding this project is shown infigure 1.

Trust lies at the heart of cooperation. Withouttrust, people do not communicate and, as a result,cooperation is unlikely. People who work togethermust know and trust each other. It is very difficult forpeople to trust each other unless they share a commit-ment to ethical principles. An important ingredient inbuilding trust among and between members and theircooperative organization is ethical business practices.

Where high ethical standards exist, a foundationof trust is established that is essential for cooperativeaction to occur. When ethical behavior is the norm,people are more likely to trust each other which, inturn, increases levels of communication and under-standing. Where ethical conduct is emphasized, weexpect to find higher levels of two-way communica-tion between the manager, board members, andpatrons.

Open and honest communication contributes tobuilding mutual understanding of cooperatives’ goalsand mission. This, in turn, leads to greater cooperativeaction. Without the foundation of business ethics thatbuilds trust among employees, board members, man-agers, and patrons, there is little reason to expect peo-ple to work together.

Trust doesn’t just happen. It results from con-scious decisions and efforts to improve human rela-tionships. Building trust among any group is a long-term and time-consuming effort. In an article in TheAtlantic Monthly, Peter Drucker (1995) discusses princi-ples of re-inventing Government and strategies thatmany major corporations have used to improve theirperformance. Behind many of the efforts to becomemore efficient and productive has been increasedattention on building trust, communication, and coop-eration.

Figure I- Ethical Conduct as a Unique Featureof Cooperatives

p)l, Trust e Cooperation’\ /

While there has been much interest in the suc-cesses of the Japanese management systems in manu-facturing, such as quality circles and Total QualityManagement, much of this has relied upon buildingteamwork among workers. Much of this emphasis hasbeen upon building teams through creating trust andloyalty in the workplace.

Cooperative LoyaltyMember loyalty is a major concern expressed

throughout the cooperative literature. Membershippatronage and participation in the governance are cen-tral to building strong and successful cooperatives.Much literature focuses on how to attract and maintainmember loyalty.

The premise of this project is that membershiployalty should be viewed as an outcome or product ofsound business ethics which creates a climate of trustwithin cooperatives. Membership loyalty and partici-pation are low where trust does not exist or where eth-ical standards have not been established or enforced.Conversely, rates of loyalty and participation are high-er where ethical standards and trust have been empha-sized.

Typically, members evaluate their cooperative interms of prices paid or received, patronage refunds,and the range and quality of services. Using these cri-teria, it is often difficult to differentiate cooperativesfrom noncooperatives. While “meeting the competi-tion” is important in the day-to-day success of cooper-atives, more attention is needed to build long-termmembership commitment and loyalty. Cooperativesneed to develop unique ethical qualities that will helpdistinguish them from their competitors. This reportargues that strong, vibrant cooperatives have a strongfocus on business ethics and ethical practices.

Previous research on membership loyalty hasexplored membership attitudes (Utterstrom,Heffeman, and Torgerson, 1976) and special nichemarkets that cooperatives might fill such as providingservices to small farmers that would attract patronageand loyalty (Lasley and Geller, 1983). Other researchhas examined how organizational structure of cooper-atives may influence membership participation andultimately control of the organization (Lasley, 1981).However, the relationships between organizationalstructure and membership attitudes, participation,patronage, and control have generally been modest toweak.

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Cooperative DistinctivenessWhen asked to define a cooperative, members

often talk about patronage refunds, the presence of aboard of directors, or that they own part of the busi-ness. However, distinctions among cooperatives andbetween cooperatives and noncooperatives are fre-quently unclear.

This suggests that cooperatives have not beensuccessful in making themselves unique and distinctfrom other forms of business organizations or fromeach other. Even in cases where cooperatives havebeen financially successful, members often fail toappreciate the important role that cooperatives play inproviding a yardstick to assess private companies.This suggests that the perceived differences amongcooperatives and between cooperatives and noncoop-eratives are real but relatively unimportant. Thisreport suggests that cooperatives must demonstratetheir unique roles in the agricultural industry byemphasizing ethical conduct.

Ethical Problems Posed to CooperativesAgricultural leaders are faced with many difficult

decisions that present vexing ethical dilemmas.Cooperative members often express concerns aboutethical decisionmaking and behavior at the local,regional, and national levels. Yet, they feel inadequateto offer solutions. From competitive pressures to con-fusion about fiduciary responsibilities, waning loyal-ties, conflicts of interest, and breach of trust by theirpatron-members, many cooperative members expressconcern for what they see as declining ethics in theirorganizations, community, and country.

Ethical dilemmas are often apparent in pricingpolicies and practices, sales promotion, disposition ofsales incentives, business dealings with relatives andfriends, and neglected leadership and membershipresponsibilities. Many of these decisions hold importantethical implications for membership trust and loyalty.

Business illegalities, including bribery, insidertrading, executive piracy, fraud, and collusion, alongwith more subtle conflicts of interest, including gifts orfavors, personal financial interests, external affilia-tions, and moonlighting, erode confidence that cooper-atives are unique in their business ethics. It is not sur-prising that many who hold a stake in agriculturalcooperatives feel overwhelmed by the ethical dilem-mas and are ill-prepared to resolve them.Cooperatives, like small businesses, large corporations,social institutions, and governmental agencies, arestruggling with ways to create ethical environmentsand restore fairness, confidence, and trust.

Attention to business ethics has played a majorrole in differentiating farmer cooperatives from othertypes of businesses and, in the future, ethics will play amore prominent role in strengthening cooperatives.Membership loyalty will become more important forcooperatives to retain their members and to maintainmarket share in an ever increasingly competitive envi-ronment. As coordination increases through formalcontracts or vertical integration in agriculture, a keyconcern should be identifying what cooperatives cando to sharpen or highlight their commitment to higherethical standards to enhance membership loyalty andincrease patronage.

SummaryChapter 2 explores ethical issues interwoven intothe everyday course of events and decisionmakingof cooperatives. The first objective of this report is toraise awareness of ethical issues that confront coop-eratives on a day-to-day basis and discuss howethics differs from morals.Cooperatives should focus on those aspects of theirorganizations that highlight their distinctiveness.Long-term commitment and loyalty are key consid-erations for the success of cooperatives givenheightened competition among agriculture suppli-ers and processors. Developing a strong code ofethics will help build trust among members,strengthen communication, and lead to greatercooperation, commitment, and loyalty. In doing so,cooperatives could gain a competitive advantage bydeveloping and emphasizing a code of ethics thatclarifies them as distinct from their competitors.This rationale is presented in Chapter 3.Chapter 4 explores the evidence concerning percep-tions of the importance of ethics and how Iowa pro-ducers perceive the erosion in business ethics. Datafrom the Iowa Farm and Rural Life Poll, as well asinsights from focus groups conducted among coop-erative directors and managers, are presented. Thesedata suggest there is a growing recognition that eth-ical business standards are important to producers.With increased competition among agribusiness andevidence that producers are concerned about theerosion of ethics, cooperatives can highlight theirdistinctiveness by emphasizing ethical standards. Toremain competitive and serve members, coopera-tives must monitor member needs, and enlist mem-bership support in renewing their commitment toethical business practices. Tools to develop a strongcode of ethics are discussed in Chapter 5.

l Chapter 6 provides worksheets and exercises thatcan be used in group settings or staff meetings tobegin work towards strengthening business ethics.A key focus of these materials is to suggest thatattention to ethics is not an event but rather an on-going process. Simply adopting a code of ethics isinadequate. There has to be a commitment to incor-porating ethical considerations into all decisions.These materials are designed to help initiate ethicaldecisionmaking processes.

Chapter 2. What Is Ethical in Business

“Ethics is about character and courage and how we meet thechallenge when doing the right thing will cost more than wewant to pay. If

Michael Josephson

“We judge ourselves by our intentions while others mustjudge us by our behavior. ”

Verne E. Henderson

What is “ethical” behavior in a cooperativeand what criteria can be used to determinethe ethicality of a cooperative business deci-

sion? These questions are addressed in this chapter.

Identifying an Ethical IssueA “moral” or ethical issue is at stake anytime a

person’s actions may benefit or harm others (Jones,1991). Ethical behavior is commonly regarded asmorally correct behavior (i.e., proper, just, good, desir-able, obligatory, etc.) based on theories or philosophiesof morally correct behavior (Bommer et. al., 1987:267).

Unfortunately, this broad interpretation of ethicalbehavior is not very helpful in analyzing the ethicalityof specific actions in cooperatives. More specifically,event-applicable definitions of ethical behavior are dif-ficult to establish and not very useful (Jones, 1991). Asa result, questions of ethical behavior rarely yield sin-

gle, noncontroversial answers (Henderson, 1992).Reasonable people can, and often do, disagree

over the degree of ethicality of specific actions taken inbusiness. In part, this is because each of us hold difjent values and beliefs that shape how we judge theethicality of decisions.

Ethics as a Field of StudyEthics is generally regarded as a branch of phi

ophy that deals with how people ought to live byincorporating notions of what human conduct is“good” and what behavior is “just” or “right.” One

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source of rules about what is right and wrong is socialmores. For this reason, ethics has been described as“moral philosophy” (Pojman, 1990).

Some contend that philosophers have not ade-quately defined ethics, even though they have debatedethical questions for hundreds of years. For example,both Aristotle and Plato (400 BC) were writing aboutwhat is “good” and what is “right.” While public inter-est in business ethics, including cooperatives, mayseem to be a relatively modern phenomena, the moregeneral field of ethics has been in existence for nearlyas long as humankind.

Business EthicsPeter Drucker (1981) doubts whether business, or

any other activity for that matter, warrants having its“own” ethics. Drucker’s view seems to be in theminority on this matter. A more commonly held opin-ion is that the business ethic differs from that which ispracticed at home, church, or other social gatherings(Henderson, 1992). Some argue that even though somerules apply to everyone in every situation, it is a mis-take to think of ethics as a unique code of rules withuniversal applicability (Henderson, 1992; Solomon andHanson, 1985).

Many aspects of ethics are specific to particularcommunities and organizations, including the practiceof business. There are differences in ethical standardsbetween small towns and big cities, small and largecompanies, banks and car dealers, physicians andschool teachers, and investor-owned companies andcooperatives. Ethical considerations are also likely tovary among cooperatives and across situations. Thereseems to be a growing consensus that business ethicsis a distinct field of study or sub-discipline within thebroader discipline of ethics.

To clarify what is typically meant by businessethics for cooperatives, consider what business ethicsis not. It is not simply a list of specific instructions onwhat to do and not to do to produce ethical activity.Ethics is not a unique set of rules that apply to all busi-nesses in all situations (Solomon and Hanson, 1985).Rather, business ethics for cooperatives is a never-end-ing “process” of attempting to discover, clarify, andresolve what constitutes the best business action totake in accordance with some belief of societal or com-munity welfare. In this sense, ethics for cooperatives isa dynamic process given the ever-changing nature ofsociety’s attitudes and expectations.

Thus, business ethics is a process used to consid-er the mutual expectations of all constituents involved,

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formally or informally mandated, to settle a broadarray of issues in business such as fairness, truthful-ness, and justice.

Business ethics deals with the results or conse-quences associated with business decisions, and themeans, methods, and motives employed in the deci-sionmaking process. Business ethics is concerned withwhat businesses do, as well as how and why. It iseither explicitly or implicitly an integral part of busi-ness decisionmaking. “Cooperative” ethics merelyapplies to the cooperative form of business.

Business Ethics Versus Personal MoralsWhile “business” and “personal” ethics are close-

ly related in this report, the two are not considered thesame. Personal ethics, perhaps more commonlyreferred to as “morals,” relates to beliefs, values, prin-ciples, attitudes, and convictions about what is right,proper, and acceptable personal behavior in social rela-tionships, usually outside of a business setting.

Morals are learned through personal experiencesinvolving family, church, government, education, andwork. These institutions play a key role in definingsocietal expectations about which morals or rules ofpersonal conduct ought to be followed in both busi-ness and nonbusiness settings.

Morals help explain differences among peopleand are reflected in one’s personal conduct. Ethics is,however, negotiated. They include mutual expecta-tions that you hold for others, and what they hold foryou. The key difference is that morals are private orpersonal, while ethics are social expectations.

Business ethics, on the other hand, deal with per-sonal behavior considered appropriate within a busi-ness or professional context. Business ethics are not thesame as personal morals. Ethics are social expectationsheld for a specific person or group. For example, teach-ers are held to a different set of ethics because of theirimportant influence on children. In many professionsand occupations, including physicians, lawyers, nurs-es, and clergy, expectations for behavior have been for-mally codified.

There are obvious individual differences in per-sonal morals. What one person views as moral, anoth-er may view as immoral. There are some universalmorals across society such as prohibitions about lying,stealing, infidelity, and killing. However, even thenthere are often varying degrees to which people holdthese morals as absolutes. For example, the moral prin-ciple of not killing another human being has beenhotly debated in the case of the death penalty and isgenerally not applicable in case of war.

Individual differences in ethical principles areactually used in the business world. A person isregarded as “ethical” if his/her own level of ethicsmeets or exceeds societal expectations in either a “per-sonal” or a “business” context. However, in practice,the term “ethical” normally refers to a person or abusiness whose level of business ethics meets orexceeds societal expectations. The term “moral” nor-mally refers to personal ethics.

Figure 2 summarizes these typical, alternativesocietal views of individual behavior (drawn fromHenderson’s framework, 1992:103). Societal perspec-tives of two alternative kinds of individual behavior(“proper” and “improper”) combined with two alter-native settings (business and personal) result in fourdifferent theoretical behavioral types-moral, butunethical (quadrant I); moral and ethical (quadrant II);immoral and unethical (quadrant III); and immoral butethical (quadrant IV). Exercise 1 in the accompanyingworksheets found in Chapter 6 is designed to help thereader identify examples of each type of behavior.

Morals Versus EthicsAn individual may be ethical in a business sense

and unethical in a personal sense (i.e. “immoral”).However, most people believe there is a high degree ofcorrelation between one’s personal and businessethics. One who engages in immoral personal behavioris thought to be more likely to engage in unethicalbusiness behavior.

It seems logical to assume that what one does intheir private lives may influence decisions or choicesthat they make in business. For example, it is hard toimagine that an individual who frequently lies tohis/her family would always tell the truth to his/herco-workers. For this reason, customers may avoid ethi-cal businesses run by immoral people.

Customers or patrons are likely to be skepticalabout patronizing a business that is managed by peo-ple who are generally regarded as ethical but immoral.At the same time, some customers make decisionsabout patronizing a business solely on the basis oftheir perceptions about the ethicality of the businessand the people who work there. While patrons maynot know much about the personal morals of employ-ees, their perceptions of fair treatment, product serviceand warranties, and general ethical climate of the busi-ness influence their patronage decisions.

Because cooperative managers and directors aregenerally viewed as community leaders, it is likelythey are held to both a higher ethical and moral stan-dard than the general public. Because of their public

Figure 2-Alternative Societal View of Individual Behavior

Personal Life Behavior

Proper

Moral but Unethical Moral and Ethical

Improper

BusinessLife

BehaviorProper

Immoral andUnethical Immoral but Ethical

Improper

role in providing leadership to the cooperative and thecommunity at large, their behavior may be under con-stant scrutiny. Frequently, leaders in small communi-ties feel constrained and under surveillance. Becauseof the close association drawn between one’s personalmorals and business ethics, it is important that cooper-ative officials understand that what they do in theirprivate lives may also reflect on their public role ascooperative or community leaders.

Alternative Ethical PositionsMultiple criteria can be used to evaluate the

ethics of business decisions and decisionmakers. Thedifferent theories of ethical behavior often apply dif-ferent weights of importance to the various “ethical”criteria (table 1, Pojman, 1990). There are, however,some near universal virtues considered desirable bysociety (table 1). Subscribing to these virtues andencouraging behavior to achieve them might simply beconsidered being a “good” business. However, it isimportant to think about ways that cooperatives candistinguish themselves from other “good” businesses.

There are several ways to classify ethical stances.One way to summarize these positions is to focus on

the “three Cs” of ethical business theories and wherethe emphasis is placed-character of the decisionmak-er, compliance of the methods used with societal rulesand principles, or the consequences of the decision.

Understanding these ethical positions clarifiedhow others view the ethics of their business decisions.

Table +Virtues and Corresponding Behavioral Traits

Virtue Duty or Principle

Nonmaleficence

Beneficence

Fairness

Honesty

Conscientious

Faithfulness

Kindness

Graciousness

Do not inflict harm

Provide help or assistance

Be just, impartial, nondiscriminatory

Tell the truth, do not be deceitful

Be sensitive, empathetic

Be loyal, honor one’s commitments

Be nice

Be appreciative

Source: Pojman, 1990.

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How often have you heard an employee say theyapprove of their bosses’ decision, they just don’t likethe way they made the decision? Much of the organi-zational literature on decisionmaking emphasizes thatthe process is just as important as the substantiveissues. This suggests that each of us choose to empha-size different ethical positions.

Sometimes we focus on the character of the deci-sionmaker, yet in other settings we judge a decision onwhether it complies with existing rules and regula-tions, and in other situations we focus on the conse-quences of a decision.

Character-Based EthicsCharacter-based ethics are based on goals,

motives, and intentions. These ethical systems contendit is important not only to do the right thing but also towant to do it. In this approach, the intentions, motiva-tions, character, and dispositions of the decisionmakerare at the heart of determining what is ethical in busi-ness. Being an ethical or virtuous person is consideredimportant because it will manifest itself in ethicalactions. The inner self or personal psyche motivates avirtuous person to do good because that in itselfmakes them feel good about themselves and theiractions.

Pojman (1990) says, “If we agree there is a gener-al tendency in human affairs for social relations to rundown due to natural inclinations toward self-interest,then we can see that special forces must be put inmotion to countervail natural selfishness. One of theseforces is the external sanctions produced by the lawand social pressure. But a deeper and more enduringforce is the creation of dispositions in people to dowhat is morally commendable. It is necessary that peo-ple should acquire, and should seek to ensure that oth-ers acquire, what may be called good dispositions, thatis, some readiness to voluntarily do desirable thingswhich not all human beings are just naturally disposedto do anyway. . .”

Early proponents of cooperatives included membereducation as one of the principles of cooperation whichreflects a commitment to improving individual members(Royers, 1992; Cook, M., 1992; Gray and Mahoney, 1992;Ingalsbe, 1984; Morris, 1987-88). A concern for coopera-tives is determining when one’s best self-interest behav-ior is ethical and when is it not ethical.

For example, is it ethical for a cooperative mem-ber to patronize another business because he/she canget a “better deal?” While cooperative leaders may notconsciously think about what motivates them or othersin cooperatives they need to identify the virtues they

desire to be reflected within the organization becausethey provide the foundation for which decisions theywill regard as ethical.

Dilemmas arise in the application of virtue-basedethical theory. This happens when a decision has to bemade that forces the decisionmaker to sacrifice oneprinciple to realize another. For example, should onelie about the whereabouts of a person to protect themfrom bodily harm that might be inflicted by others? Ifone decides yes, the virtue of honesty would be sacri-ficed for the virtue of nonmaleficence. Some mayattempt to deal with this issue by focusing on the ethi-cality of the act itself (lying), while others might preferto solve this problem by focusing on the ethicality ofthe consequences.

Most people, including cooperative leaders, pur-port to have desirable virtues and good intentions, yetmany are regarded by others as unethical. One plausi-ble explanation is an unrecognized inconsistencybetween one’s intentions and actual behavior. Whilewe judge ourselves by self-perceptions of our ownintentions, others judge us and our ethics by ourbehavior largely because that is all that is observable tothem. Others are not aware of our innermost thoughtsand intentions. If we could only see ourselves as otherssee us, we would likely be more sensitive to makingour actions reflect our thoughts.

What we do often becomes a matter of publicrecord, while why we did it remains unknown.Another possible explanation for a discrepancy inintentions and behavior is that virtues and values thatpeople hold as decisionmakers surface during times ofcrisis (Henderson, 1992). People who abandon com-monly held virtues for self-interest reasons, even if it isdue to pressure or duress, are often regarded as uneth-ical by others. Financial pressures may cause coopera-tive leaders or patrons to abandon virtuous principlesof behavior. While such behavior may be self-justified,it may be seen as unethical by others.

Compliance-Based EthicalityCompliance ethicality is based on moral princi-

pals, rules, and laws. Neither the intentions of thedecisionmaker nor the resulting consequences deter-mine the ethicality of one’s behavior, but rather therightness or wrongness of the act or method itself(Pojman, 1990). Compliance with established laws,rules, moral principles, etc., is normally the basis forjudging the correctness of the action taken on themethod used. A person who adheres to this theorywould not agree with the argument that, in somecases, “the end justifies the means.”

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Examples of moral rules rooted in religiousbeliefs include the “Ten Commandments” and the“Golden Rule.” The degree to which human rights(entitlements of individuals such as the right to priva-cy, free speech, due process, etc.) are respected asanother method for determining the ethicality of busi-ness behaviors. The degree to which legal rights(established by laws), consumer rights (regardinghealth and safety issues), and principles of justice(impartiality, equal opportunity, entitlement, merit) arefollowed reflect ethical positions. Any method orbehavior that violates a “rule” is regarded as unethicalunder the compliance-based perspective.

Compliance with rules, policies, laws, ethicalstandards, etc. is the primary concern to a person who.decides what is ethical on the basis of prescriptions.Such a person believes in following rules to the letter,doing their duty, and doing things right (Henderson,1992:43). They are unlikely to “bend” the rules orchange the standards to get the job done. Often, thosewho emphasize the “rules” are considered inflexiblebureaucrats. The rules become more important thangetting the task accomplished.

How to apply moral rules can sometimes be theAchilles heel for those who subscribe to the compli-ance-based ethical perspective. For example, how farshould one go in judging the ethicality of behavior byapplying the principle that one should not steal-thatis, take someone else’s property without paying a fairand agreed-upon price for it?

Does it mean that a person should not takeadvantage of a company that prices an item wrong orundercharges on a billing statement? Should the penal-ty for stealing a paper clip be the same as for embez-zling thousands of dollars? Should a cooperativeemployee never borrow company equipment for per-sonal use? Should a cooperative never take advantageof a financially troubled competitor? Often, the issuerevolves around where one draws the line betweenethical and unethical.

Consequences-Based EthicalityConsequences-based ethicality emphasizes the

impacts or results of behavior in judging the ethicalityof that behavior. A person who adheres to this per-spective on ethics is more likely to agree that “the endjustifies the means.” As a result, people who subscribeto this perspective are more inclined to “bend” therules, change the standards, or do the right things (ver-sus doing things right). Getting work done andrespecting other people’s judgments and feelings arelikely to receive higher priority than following the

rules. Recommended changes in policies and proce-dures are likely to be proposed firsthold this view of ethical behavior.

by people who

The most widely accepted type of consequence-based ethicality is “utilitarianism.” It says ethicalbehavior produces the greatest good for the greatestnumber of people (Cavanaugh, 1981:365).Decisionmakers are expected to anticipate all of theeffects of their decisions on the interests of all indi-viduals and groups that may be affected. In reality,decisionmakers, including cooperative leaders, oftentake “calculative shortcuts” (e.g., only calculate quan-tifiable dollar costs and dollar benefits, only calculatedirect impacts ignoring indirect or secondaryimpacts) to reduce the complexity of utilitarian calcu-lations.

However, these do not automatically excuse thedecisionmakers from being morally responsible fortheir actions. Business decisions insacrifice societal or constituent goa

cooperatives thatls for personal gain

Ethical Versus LegalWhile ethical and legal business behaviors are

often closely related, ethical theorists contend they arenot synonymous (Henderson, 1992; Pojman, 1990).Legal business behavior complies with laws (i.e. rules)as defined by a legislative body Ethical businessbehavior complies with a socially accepted theory ofmorally correct behavior. Laws are often based on et1cal or moral principles where both have the commonpurposes of promoting human well-being, resolvingconflicts of interest, and enhancing social harmony.

U-

For this reason, much overlap exists between ethi-cal and legal (or unethical and illegal) behaviors.However, it’s impossible to have an enforceable lawprohibiting every specific type of unethical behavior.Most illegal behaviors are probably viewed as unethicalas well, although this may not always be the case. Forexample, some may believe that non-deceptive advertis-

*ing of cigarettes on television is an ethical activity, butbecause it is banned by the FCC, it is illegal.

The sanctions against illegal activity are differentfrom those against unethical activity. Physical sanc-tions or punishments are intended to enforce compli-ance with laws while only sanctions of conscience andreputation enforce compliance with ethical principles.In reality, most people avoid violating the law for sev-eral reasons includingterns related to possib

legal consequences, ethical con-le moral principles underlying

8

the law, and to strong social stigma associated withdoing something “illegal.” Because ethics covers abroad range of issues beyond legality, cooperativesmust do more than just comply with the law to distin-guish themselves from other forms of business.

SummaryDetermining the ethicality of behavior in cooper-

atives is complicated. What is ethical depends on anumber of considerations, including the motives,methods, and anticipated consequences associatedwith the decisions being made (Henderson, 1992). Italso depends on which framework one uses in decid-ing what is or is not ethical.

Rarely is there complete agreement as to the ethi-cality of specific behavior except for instances of obvi-ously illegal behavior. Agreement on what constitutesethical behavior among cooperative managers tends todiminish as the behavior goes from the general tosomething specific (Dunn, 1988). Often, what is ethicalin cooperative businesses is “situational” dependingupon the circumstances associated with an action ordecision.

Perhaps more important for cooperative leadersis “Who decides what is ethical?” The ethicality ofdecisions in a cooperative will be judged not only bythose making the decisions but also by all con-stituents-everyone affected by those decisions. It isnot the cooperative that acts ethically or unethically,but rather individuals associated with it. Most cooper-ative business decisions involve unavoidable ethicalchoices.

As a result, decisionmakers need to have a basicunderstanding of business ethics and avoid situationswhere they act first and then later defend the ethicalityof their decisions.‘Having an understanding of thebasic ethical concepts will help cooperative leadersavoid unethical positions and decisions. Such anunderstanding will help cooperative leaders incorpo-rate ethics more fully into the decisionmaking andmanagement process.

Business leaders are in positions of power andinfluence. Their decisions may determine not only theethics of their coworkers and businesses but also thepersonal ethics of individuals with whom they work.Therefore, cooperative managers and directors arelikely to be held to a higher standard of ethics.

Chapter 3. Agricultural Cooperativesand Business Ethics

“What we do for ourselves dies with us. Wh& we do for oth-ers remains and is immortal.”

Albert Pike

‘*Every day our society pays a heavy price, both emo-tionally and economically, for the consequences ofunethical behavior.”

Michael Josephson

Emergence of Ethical Issues

The emergence of cooperatives and the coopera-tive movement can be viewed as a response tofarmers’ perceptions that they were not being

treated fairly by the private sector. By the mid to late19th century, farmers began to recognize that abuses ofeconomic power by agribusiness, especially grain com-panies and railroads, were responsible for much oftheir financial plight.

Proponents argued that cooperative buying andselling would enable farmers to achieve economies ofscale in buying inputs and selling outputs and wouldprovide farmers with additional power. Moreover, itwas argued that cooperatives would enable farmers tobypass the middlemen who were often perceived asengaging in unethical conduct.

Many of today’s farm organizations and coopera-tives can trace their roots to the farm protests of thelate 19th century (Torgerson, 1972). In response towhat was perceived as unethical and, in some cases,illegal business practices, the National Patrons ofHusbandryman (Grange) was organized to enact legis-lation for the regulation of railroads and to collectivelyorganize farmers to eliminate the middleman.

The Farmers Alliance and the Farmers’ Unionwere also heavily involved in attempting to control thepower wielded by agribusiness. Later, the AmericanFarm Bureau and the National Farmers Organizationactively supported agricultural cooperatives to stemthe power wielded by agribusiness.

The first farmer-owned cooperatives in theMidwest were formed more than 100 years ago toassure farmers a fair price for the products they soldand a reasonable price for the products they bought.Access to market information was poor and farmerswere suspicious because they had no basis on which tojudge how buyers and sellers were treating them.

9

As farmers discovered the existence of secretgrain buyer agreements to pay a uniform pday effectively eliminating competition for

rice eachfarmers’

grain or for their purchases ofthey formed cooperatives to p

coalrotec

and other supplies,It thelmselves from

unethical pricing and merchand .ising practices(Holman, 1947:7). Other cooperatives were formed tofill a void in the market when a privately owned firmwent out of business or because no other buying orselling firms existed.

By 1900, numerous farmer-owned cooperativeshad been established throughout the Midwest. Mostwere successful andbegan to captureamount of business from “regular gra

an increasingin dealers.” A.s a

result, the Illinois and Iowa regular grain dealers asso-ciations began to publish the names of grain receiverswho purchased grain from the “irregular dealers”-mostly cooperatives.

grainThe purpose of the listreceivers to force them

was toto stop

boycott the namedbuying grain from

the cooperatives. In addition, it was discovered thatrailroads favored the regular grain dealers over thecooperatives in allocating scarce rail cars. Railroadswere also found to provide some regular dealers withrebates and advanced notice of rate changes (Ho1 .man,1947:79).

In 1903, the Illinois Association of CooperativeGrain Companies was formed to protect the grain mar-kets for local Illinois cooperatives. Farmers GrainDealers Association of Iowa was formed the next year.

In many regions and industries, cooperativeshave become the dominate type of firm buying agri-cultural products from farmers and selling supplies tofarmers including grain, fertilizer chemicals, fruits,*vegetables, and milk. Cooperatives are 1in the livestock indus try although someprocess meat products. Othersproduce poul try and swine.

90In many Midwest regi

percent of the grain sold

.esssla

prominentughter and

contract with farmers to

.ons, cooperatives buy 80 toby fa rmers. Many coopera-

tives have multiple locations-some up to 20 or morebranches. Sometimes their primary competitors areother cooperatives. In these cases, the original motivefor organizing cooperatives to ensure fair dealingswith privately owned businesses has disappeared. Thedrive to increase the size of the territory as well astotal sales and savings has opened the door for intra-and inter-cooperative ethical problems.

The history of farm cooperatives suggests thatadopting and practicing a higher code ofa major impetus for cooperatives as an al

ethics wasternative

form of business. The Rochdale principles of coop-

eration were to be used by cooperatives to bringeconomic and social benefits (Morris, 1988;Torgerson, 1972).

Cooperatives were organized by farmers on acommunity basis so they could collectively benefitfrom buying supplies or marketing farm products. Akey ingredient was establishing rapport and develop-ing trust among farmers. Frequently, cooperative orga-nizers were respected local opinion leaders who hadrapport with local farmers.

Early cooperative leaders recognized that to besuccessful they needed to sharply differentiate them-selves from traditional private sector businesses. In theanti-business climate created by price gouging, pricefixing, and other unethical practices, it was necessaryto explain how farmers would benefit from a coopera-tive. The early organizing efforts stressed the impor-tance of farmer control, honest business dealings,integrity, and high ethical standards.

It was the attention to honest business practiceand treating all members fairly that attracted manynew members. Cooperatives are businesses owned bypatron members who use and benefit from them. Theyare built on the foundation of trust. Trust, essential forpeople to join and work for mutual goals, rests on afoundation of commitment to ethical business treat-ment.

Principles and Ethical ConcernsAlthough ethics is of growing concern through-

out the business community, the unique characteristicsof agricultural cooperatives introduce some specialethical dilemmas. A cooperative is an organizationoperated as a business, voluntarily owned and con-trolled by member patrons, and operated on a costbasis.

Dunn (1988:84) highlights the unique character ofcooperatives where the status of user-owner and con-trol is vested in the same individual. He has cited threecentral cooperative principles:

A I I

The User-Owner PrincipZe: Those who own andfinance the cooperative are those who use it.User-ContvoZ Principle: Those who control the coop-erative are those who use it.The User-Benefits Principle: The cooperative’s solepurpose is to provide and distribute benefits to itsusers on the basis of their use.

Combining these three principles, Dunn (1988:85)defines a cooperative business organization as, “a user-owned and con trolled business from which benefits are

10

derived and distributed on the basis of use.” Baarda (1986) fare of its customers, its ultimate responsibility is tocompares how a cooperative business organization dif- earn profits for its stockholders. For cooperatives, thefers from other forms of business based upon seven profit motive is tempered by the need to be responsivefeatures (figure 3). to members’ needs (Clifford, 1984).

This comparison reinforces the three central prin-ciples identified by-Dunn as the distinguishing fea-tures of cooperatives. Across the seven features pre-sented, patron members are the intended beneficiaries.

Considering Ethical StandardsEthical standards of cooperatives should follow

basic standards of honesty and integrity. All business-es must adhere to national, State, and local govern-‘ment laws. Similarly, all businesses should avoid con-flicts of interest in their dealings with other firms andcustomers.

The orientation to group concerns, collectiveaction, and to the welfare of all members distinguishescooperatives from their noncooperative competitors.Thus, while both forms of business must subscribe tohonest business ethics, cooperatives have a broadermission. Because of a commitment to the collectivewelfare of its members, cooperatives must have an eth-ical decisionmaking philosophy and structure that dif-fers from those of its more narrowly focused competi-tors (Dunn, 1988).

The basic difference in ethical standards betweeninvestor-owned firms and cooperatives rests in theirorganizational objectives and missions. While aninvestor-owned firm must be concerned about the wel-

Cooperative business practices should reflecttheir orientation to group needs and welfare. Ethicaldecisions in cooperatives, then, should reflect recogni-tion and commitment to the user-control, user-benefit,and user-owner principles. Decisions that violate thesethree central tenets should be viewed as unethical.

Figure 3- Methods of Doing Business Under Private Enterprise

Features Compared Individual Partnership Investor Cooperative

Who usesits services?

Non-ownercustomers

Generally non-owner customers

Generally non-owner customers

Chiefly theowner patrons

Who ownsthe business?

The individual The partners The stock-holders The memberpatrons

Who votes? None necessary The partners Commonstock holders

The memberpatrons

How is votingdone?

Not necessary Usually bypartners’ sharein capital

By shares ofcommon stock

Usually onemember, onevote

Who determinespolicies?

The individual The partners Common stock -holders anddirectors

The memberpatrons anddirectors

Are returns onownership capitallimited?

No No No Yes--usually 8percent or less

Who gets theoperating proceeds?

The individual The partners inproportion tointerest in business

The stock-holdersin proportion tostock held

The patrons ona patronagebasis

Source: Baarda, 1986; see also Torgerson, 1972:7

11

Treating all members the same is a basic tenet ofcooperation. Because there may be differences in inter-pretation between equal and fair treatment, it is impor-tant that cooperative members be involved in discus-sions about treatment. A competitor has more flexibili-ty in making decisions and can make special deals orprices to preferred customers.

In cooperatives, however, all prices should beposted and available to all members. While prices mayvary because of differences in volume or handling cost,all members who meet the requirements for discountprices should be able to take advantage of the postedprice schedules. Equality of membership is an ethicalprinciple of cooperation (Gray and Mahoney, 1992).

Beyond the economic welfare of its members,cooperatives should consider their responsibilities tosupport activities that strengthen group identificationand membership development. Lessons in democraticprocesses, such as elections, serving on the board ofdirectors, membership meetings, exercising leadership,and collective decisionmaking, contribute to the devel-opment of members. Sponsoring local events, provid-ing scholarships, demonstrating community involve-ment, taking an active role in community events and,other activities demonstrates an ethical position ofcommitment to the welfare of its members beyondagricultural prices.

The cooperative is ultimately responsible to bothits owners and its customers. Because members areboth customers and owners, there should be fewerconflicting interests than in an investor-owned compa-ny. Nevertheless, many conflicts of interest arise with-in cooperatives such as if the grain price offered to onemember, a director for instance, plus the handling cost,exceeded the price that the cooperative could obtainfor the grain.

In this case, cooperative equity would be trans-ferred from all other members to one member. Otherpotential conflicts of interest can arise within a cooper-ative. One guiding principle in establishing an ethicspolicy is that the cooperative should engage only ineconomic activities that contribute to an increase inearnings available to all members. Any pricing or ser-vice activity should cover all variable costs and makesome contribution to coverage of fixed costs. If thisprinciple is followed, every economic activity willincrease the total equity for its members.

One important ethical question within a coopera-tive is, “What is the responsibility of a member to thecooperative ?” How much loyalty should a cooperativeexpect from individual members? Member loyalty his-torically has been a problem with cooperatives (Craig,

1982-83). Farmer members have a history of seekingout the highest bid for their grain or the lowest pricefor their farm prod

there alsouction supplies. In too many coop-

tives, is a history of members not attend-eraing annual meetings. Should cooperatives somehowinsist that members stick to their implied agreement ofsupport?

One of the first attempts to ensure member loyal-ty occurred in an Iowa cooperative. On June 7,1900,the Farmers Cooperative Society at Rockwell imposeda penalty clause on its members (Holman, 1947).

Here’s how it worked: Assume a farmer-memberbrought grain to the cooperative to sell. The indepen-dent competitor elevator at Rockwell offered thefarmer two cents more per bushel than the coopera-tive. The member was free to accept the higher bidfrom the competing independent elevator. However,the penalty clause required the member to pay a one-half cent per bushel commission to the cooperative.

If the farmer refused to pay the commission,membership in the cooperative was suspended untilwas paid. The.farmer could continue to sell or buy

it

from the cooperative while under suspension butwould be paid one-quarter of a cent less for grain andwould be charged 25 cents per ton more for coal.

For 40 years the penalty clause was successful inmaintaining member loyalty. By the time the penaltyclause was ruled illegal in 1930, patronage refunds hadbecome the major motivation for members to remainloyal.

In recent years, additional forces have tended toerode member loyal !Ywere improved and fa

to a single cooperati ve. Roadstrucksrmers began buying

which substantially increased their marketing options.Over time, the number and size of farm trucks andtheir traveling capacity increased.

Improved county, state, and interstate roads haveenabled farmers to quickly access distant grain mar-kets. This increased mobility has encouraged farmersto become members in two or more competing cooper-atives. Multiple memberships blur the answer to thequestion to which cooperative the members should beloyal.

Second, improved communications have enabledfarmers to compare the bids offered by distant eleva-tors. Farmers have wider choices of prices and marketsto sell grain. The improved communications andmobility have, to some extent, diluted one of the origi-nal purposes of cooperatives.

Third, many cooperatives have followed a prac-tice of deferring the payment of a portion of decpatronage refunds. For tax purposes, cooperativ

laredes are

12

required to pay a minimum of 20 percent of the currentdeclared patronage refunds in cash. The remainder canbe deferred for 5,10,15, or even more years. Thelonger the patronage refunds are deferred, the lowerthe value the farmer places on future refunds.

Fourth, in the past two decades, mergers andconsolidations have reduced the number of localfarmer-owned cooperatives. Those remaining havebecome much larger in sales, area served, and numberof members. As a result, some members feel lessinvolved than in the past and, therefore, have less loy-alty. Moreover, each member’s business has a smallerimpact on the welfare of the cooperative, making themember feel less guilty about taking part or all of hisbusiness elsewhere.

Perhaps the best way cooperatives can earn andretain the loyalty of their members is to provide thebest prices, services, and communications and in anethical manner so that each memb,er strongly believesthat this cooperative conducts all of its business withhonesty, fairness, and integrity. But honest businesspractices alone do not distinguish cooperatives frommost private companies. The uniqueness of coopera-tives is their commitment to the welfare of the entiremembership, rather than being focused on just indi-vidual economic welfare.

Current Dilemmas and StructuresMembers, directors, and managers may sense

conflicting expectations in attempting to fulfill thethree central principles of cooperation outlined byDunn (1988). Cooperatives operating in an extremelycompetitive environment may find members beinglured away by incentives offered by private companiesor even other cooperatives.

These competitive pressures may test the ethicalstandards of cooperative directors, managers, andindividual members and may contribute to them cross-ing over the line of ethical acceptability. While individ-ual greed and dishonesty play a part, financial stress,unrealistic expectations, rules and regulations, organi-zational exploitation, and communication breakdownspresent additional reasons or justifications for unethi-cal behavior.

High debt loads and low profit margins createfinancial pressure that weakens the ethical resolve ofsome patron members and affect their relationshipwith their cooperative. Managers striving to treateveryone equally often feel isolated and vulnerable toexcessive criticism for poor performance of the cooper-ative. Some directors may seek preferential treatmentor abdicate their board responsibilities.

Examples of the excuses heard in justifyingunethical cooperative practices include: “It’s hard tosurvive on honesty; Ethics are easier when you’remaking money; and Ethics fall when your back is tothe wall.”

The structure of cooperatives is often blamed forethical dilemmas. In some cooperatives, directorsreceive either very inadequate or no compensation fortheir service. Historically, directors were not paidbecause it was felt that any compensation would placethem in a conflict of interest.

As a result, many cooperatives have had difficul-ty getting good leadership on their boards. Is it goodbusiness or even reasonable to expect volunteers to becurrent on the range of complex business decisionsthat cooperatives must address? In other cases, direc-tors receive a token per diem for each meeting to helpdefray travel expenses. Generally, a range of $25 to $50per meeting is a mere pittance for the responsibilitiesand expectations held for board members.

When cooperatives were small, community-basedorganizations, it was often assumed that memberswould take their turn in serving on the board. As smallorganizations, board decisions were quite visible, andlocal peer pressure served to ensure responsible boardactions. However, as cooperatives have grown andoften cover several counties, the board’s action may beless visible. Yet directors’ responsibilities have grownexponentially, along with additional personal liability.The growth in size and complexity of some coopera-tives suggests that in some cases relying on a volun-teer board hampers getting the best qualified individu-als to serve.

Some cooperatives pay employees only the mini-mum wage. Members and employees sometimes expe-rience harassment (racial, sexual, ethnic, and age-relat-ed) that creates a hostile and an unethical workingenvironment. Increasing managerial complexity andinadequate recruitment and training of directors maycontribute to their abdication of responsibilities for theorganization. In some cases, complaints are heard thatthe local board of directors is nothing but a rubberstamp for the manager or the regional cooperative.

Ultimately, it may be the general lack of under-standing of cooperative principles and practices thatleads to disregard for ethical conduct. The late GeneClifford, a cooperative educator with the formerCooperative League of the USA and later withNational Rural Electric Cooperative Association,described it well. “Many of America’s cooperativesright now are in desperate need of greater understand-

13

ing all around...without knowledge of the cooperativeheritage, there is no glue to hold membership togeth-er” (Clifford, 1984:163).

Emphasizing Ethical StandardsIf cooperatives wish to be viewed as unique

forms of business within rural communities, they mustdistinguish themselves from other noncooperativebusinesses. A commitment to business ethics may bethe most important factor available to cooperatives todistinguish themselves from other forms of business.

Given marketplace pressures and the emphasison the “bottom line” in terms of prices, quality, andservice, it may become increasingly difficult for coop-eratives to “beat their competition.” As higher vol-umes of products move to or from the farm throughcontractual arrangements with suppliers and proces-sors and further erosion in open-market tradingoccurs, it will be difficult to provide precise and directprice comparisons.

However, cooperatives may be able to captureincreased market share by stressing ethical principlesthat sets them apart from their competitors. The princi-ples of cooperation and commitment to business ethicscan serve to highlight their unique role in agriculture.

Why Emphasize EthicsBuilding trust among members and between

members and their cooperatives lies at the heart ofmaintaining strong agricultural cooperatives. Toachieve this goal, more attention is needed on how tomake ethical decisions and incorporate ethical dimen-sions into the everyday operations of cooperatives.While much attention has been given to the economicor financial side of cooperatives, there is a paucity ofinformation on how to raise ethical standards.

It is an old maxim that people want to do busi-ness with organizations they can trust. Given theimmobility of assets and the relatively fixed-tradeareas that farmers can realistically buy and sell into, itis in farmers’ best interest to have strong, viable, ethi-cal cooperatives.

Similarly, it is in a cooperatives’ long-run interestto attract and maintain members. A higher code ofbusiness ethics fits within the general discussion ofnon-price competition.

In addition to emphasis upon price, service, andquality, cooperatives may be able to strengthen theirrelative positions by placing emphasis upon “doingthe right things.” That does not mean that “doingthings right is not important,” but by “doing the rightthing” the cooperative will increasingly be judged by

14

members as more important. Doing things right bymaximizing profits for the cooperative with little or noattention to unanticipated consequences for membersmay erode long-term loyalty.

For example, cooperatives entering into swineproduction may enhance the profits of the organiza-tion, but ignoring producer perceptions that theircooperative is a competitor may undermine member-ship loyalty.

Futurists contend that social responsibility andethics will become more important considerations forconsumers and that these issues will increasinglyimpinge upon business decisions. If so, cooperativesmay be able to “get ahead of the curve” by implement-ing codes of ethics that set them apart from their com-petitors.

Here are some reasons why ethical behavior isimportant to the success of cooperatives:

1 .

2 .

3 .

4 .

5 .

6 .

7 .

8 .

1 1

The cooperative is not an anonymous entity.Unethical behavior can often be clearly detected. Inmany rural communities, the cooperative may bethe largest and sometimes the only business intown. Because of its prominence in the communityand the visibility of its actions, the cooperative can-not hide from accusations of unethical behavior.The cooperative has a lasting commitment to itsmarket. Most cooperatives have large investmentsin immobile facilities. Moreover, the owners-cus-tomers are permanent residents in the market area.Thus, the cooperative cannot easily leave the com-munity.The cooperative thrives on repeat customers.Unethical behavior will drive offended customers toa neighboring business or cooperative.Many cooperative members own stock in more thanone cooperative and are able and willing to switchto a competing cooperative to do business.Given improved roads and the increasing size offarm vehicles, farmers are able to d,eliver their prod-ucts to or purchase supplies from more distant mar-kets. Farmers can easily shift marketing and pur-chases if they perceive they are treated unfairly.The declining number of farmers is expected to con-tinue. Customers lost by unethical behavior are dif-ficult to replace.Farmers are unlikely to keep unethical behavior asecret. To the contrary, some farmers delight in cof-fee shop talk that details any favorable or unfavor-able treatment received from the cooperative.Unethical behavior that is also illegal can be pun-ished by legal action. In 1994, a former grain mer-

chandiser of a large local cooperative was sued forthe loss of about $1 million during the fiscal 1993.The defendant has since filed a voluntary petitionfor bankruptcy and his career in cooperatives hasbeen seriously compromised.

/. Ethical behavior is the right thing to do andrewards the ethical person and cooperative withgreater personal satisfaction and respect.

10. People are naturally attracted to persons and orga-nizations perceived to be honest and ethical. Thus,cooperatives have an opportunity to become leadersin raising the level of ethics in rural communitiesand, at the same time, enhance the status of thecooperative.

Chapter 4. What Members, Managers,and Directors Say About Ethics

“An ethical person often chooses to do more than thelaw requires and less than the law allows-there is adifference between what you have a right to do andwhat is right to do. ”

Justice Potter Stewart

“Ethics is the name we give to our concern for goodbehavior. We feel an obligation to consider not only ourown personal well-being, but that of others and of soci-ety as a whole.”

Albert Schweitzer

Have Ethical Standards Changed?

In discussing ethical standards in cooperatives, con-sider how the agricultural economy and rural soci-ety have changed. Michael Boehlje (1987:372) has

observed, “There appears to be changing standards inrural communities compared to earlier years. The‘your word is your bond’ attitude is no longer stan-dard. Rural people are not necessarily becoming bla-tantly dishonest, but they are more willing to acceptthe gray area between right and wrong and accept lessthan pure business decisions.”

It appears that interest in cooperative ethicalstandards is only a part of the larger set of issues thatare being raised about how rural people relate to eachother and the level of trust that exists among ruralinstitutions and their clients. Exercise 2 in the work-sheets can stimulate discussion on how you believeethics have changed.

More than one-half of the 900 farmers whoresponded to a Farm Futures poll (Knorr, 1991) agreedthat producers’ ethical standards have declined. Most

respondents said they had personally observed neigh-bors stepping beyond ethical bounds at least severaltimes a year.

In this poll, several comments supported theargument that ethical standards have declined. “It isamazing to me how many people brag about cheatingon crop insurance, income taxes, the AgriculturalStabilization and Conservation Service (ASCS), etc.,”reported an Ohio farmer. An Iowa farmer, who chairedhis county ASC committee wrote, “I think some peoplestay up nights trying to figure out a way to beat theGovernment.”

In response to a hypothetical situation as towhether they would report a pesticide tank spill ontheir farm, 70 percent indicated they would report itimmediately, 19 percent would wait and see if a prob-lem developed, and 9 percent wouldn’t do anything.This survey of commercial producers acknowledgesthat some may act in unethical ways.

To better understand whether farmers believeethical standards have declined within the agriculturaleconomy and in rural communities, several questionswere included in a statewide survey of 2,390 randomlyselected Iowa farmers. Findings from the 1993 IowaFarm and Rural Life Poll shows that prodconcerned about the erosion of ethics.

U.cers are

88 percent felt “in general, ethical standards in soci-ety have declined.”

91 percent agreed “at one time a person’s word wasas good as a signed contract; now you must first getit in writing.”

88 percent said “I used to take a person’s word as ameasure of his/her honor, but nowadays you can’talways simply accept what a person tells you.”

54 percent said “even among friends and neighbors,I am concerned that they no longer feel obliged tohonor their word,” 36 percent disagreed, and 10 per-cent were unsure.

49 percent said “often people admit they are notbeing ethical in paying the full amount of theirtaxes,” 30 percent were not sure, and 21 percent dis-agreed.

88 percent agreed “one reason ethical standards havedeclined is that people have lost respect for authori-ty,” 11 percent were unsure, and 11 percent dis-agreed.

15

l 52 percent said “farmers’ ethical standards have a. Some boards of directors have become too laxdeclined,” 17 percent were unsure, and 31 percent and trusting of the manager. This shirking ofdisagreed. responsibilities often allows the manager to oper-

Responses from the 1993 Iowa Farm and RuralLife Poll clearly indicate that respondents generallyperceive a decline in ethics (table 2).

In late 1993, three focus group meetings were

Among the nine subgroups surveyed, coopera-tives ranked sixth in terms of the proportion of respon-dents who feltethical standards had declined. Thirty-five percent said ethical standards among cooperativeshave declined in the past 10 years, 11 percent said theyhad improved, and 54 percent felt they had remainedthe same. Thus, more than three times as many peoplethought ethics had declined in cooperatives ratherthan improved.

Focus Groups Assess Ethical Issues

ate the cooperative like it was his own business.While it is clear that directors should not engagein the day-to-day decisionmaking, they have theresponsibility to set overall goals, objectives, andpolicies, and to measure progress toward them.

b. The focus group meetings indicated that some

unethical events to progress too far before taking

directors are reluctant or embarrassed to standup and ask questions. Saying, “I don’t under-stand,” makes them appear “stupid.” The focusgroups indicated that failure to ask questions andrelate goals and objectives to performance shirksresponsibility. The groups indicated that bothmanagers and directors sometimes shirk theirresponsibilities by allowing unfavorable or

organized with cooperative managers and directors inIowa to discuss ethical issues in cooperatives. Theyfocused on the types and causes of ethical problemsand issues facing cooperative managers and directors.Discussions identified eth.ical issues and problems thatthey have encountered or have heard about in their

corrective action.

c. Shirking responsibilities occurs when the manag-er or directors fail to acquire the necessary infor-mation or skills to adequate1.y fulfill their respon-sibilities. For example, some directors may not

experience as cooperative personnel. understand financial statements and’ thereforecan’t adequately evaluate the cooperative’s per-

I. Shirking Responsibilities formance or investment proposals.

The cooperative managers and directors citedseveral examples of responsibility avoidance behaviorin cooperatives:

Table z- Farmers’ perceptions of changing ethics overthe past 10 years, “How have the ethical standardschanged among the following?”

RemainedDeclined the same Improved

percent

d. The focus groups indicated that some coopera-tives maintain little control over some businessexpenses, particularly travel expenses. The man-agers and sometimes directors and employeesmay tend to take advantage of uncontrolled trav-el expenses by attending unnecessary meetingsand by charging excessive travel expenses to thecooperative. Focus group participants indicatedthat some managers lease their cars to the coop-erative and then use one for both business andpersonal uses.

e. The focus groups indicated that sexual harass-ment of female employees by managers, employ-ees, and members takes place in some coopera-tives. Examples of sexual affairs and activities incooperative offices are far too numerous.Moreover, even racial and ethnic harassmentexists.

Elected officials 78

Youth & young adults 67

Lenders 49

Farmers 41

Local merchants 38

Cooperatives 35

Local agribusiness 30

19 3

29 5

39 12

52 7

55 7

54 11

60 10

Elevator managers 28 60 12 II . Business dealings with relatives, friends, or man-agement in private business include:Neighbors 26 66 8

Source: Lasley, 1993 Iowa Farm and Rural Life Poll

16

a. Managers and directors give preference tofriends and relatives for job vacancies, possiblyhiring a less qualified person.

b. Directors grant special favors or price advan-tages to friends or relatives. Requests for specialfavors may be difficult to deny, especially if theperson making the request is a large businessaccount who may take his or her business else-where. Likewise, granting favorable settlementsto friends or relatives of directors may be unethical but difficult to deny.

c. Managers selling grain or buying supplies for hisor her private business, generally a farm busi-ness. They must be careful and demonstrate thatthey are not using their position for favorabletreatment at the expense of the cooperative.

III. Sales Incentives

a. All focus group discussions indicated that mostcooperatives face ethical problems in acceptinggifts, bonuses, and giveaways for

shifting purchases or sales to a competing firm.Chemical purchases were cited most often by thefocus groups. Chemical companies frequently ’ offertrips to vacation areas if the manager will shift thecooperative’s purchases to the offering companies.One manager reported a chemical salesman laid a$20,000 check made out to the manager on the cor-ner of his desk and said “We would like your themical business.” Such offers are considered bribes.Often, “prizes” like jackets, televisions, VCRs, andother merchandise are awarded by suppliers ifcooperatives meet or exceed certain sales goals.These so-called prizes create ethical problems notonly in purchase decisions but also in deciding whowill receive the awards. One group cited a managerwho left an implied message with salespeople,“Don’t stop if you don’t have a gift.”

.‘

b. One focus group cited a case of the retiring man-ager of a neighbor cooperative whose salary wasbased, in part, on total sales of the cooperative.Therefore, the greater the sales, the larger hissalary. Prior to his retirement, the manager“cleaned out” most of the grain and supplyinventories at less than optimal prices to insure alarge sales bonus prior to his retirement.

c. The groups also discussed cases of cooperativesoffering higher prices for grain to farmers locatedin the sales territory of neighboring cooperativesjust to get the grain. They said that, in somecases, prices offered may have exceeded the cur-rent value of the grain if handling costs wereincluded. Reference was made that this is simply“buying the market.” In these cases, the coopera-tive is transferring members’ equity to individualcustomers, and over time will “simply bleed thecooperative dry.” In addition, offering pricesabove the market to attract new patronage andmembers violates the principle of cooperationamong cooperatives. In the noncooperativeworld, this practice is often viewed as predatorypricing. Other participants mentioned that oftencooperatives intent upon expanding their marketwould use such a ploy as a price-loss leader andwould try to cover the losses they incurred inpaying too much for the grain by then trying tosell the new patron feed or other supplies. Inother cases, grades are based on the average of allloads rather than on individual loads. In somecases, discounts exceed the cost savings from thelarger volumes.

IV.

a.

Pricing

Offering grain bids to selected farmers that dif-fered from the posted bids was considered uneth-ical by some, but not by all focus group mem-bers.

b . It is obviously unethical to lie about grain bids.For example, telling one farmer, that a nonpostedbid had not been offered to another farmer, whenindeed it had been offered, is unethical.

c. The focus groups indicated that some managerspay a higher-than-posted bid for grain from hisown farm or for grain delivered by a director orfriend.

d . In some cases, sales were priced below variablecost or grain purchased at a margin less thanvariable handling costs. In each case, the cooper-ative would lose money on the purchase or sale.In effect, the cooperative would be transferringequity from all members to one or a few.

V. Illegal Business Practice

17

All illegal practices were considered to be unethi-cal. Illegal practices mentioned by the focus groupsincluded:

a. stealing,

b. collusion,

c. fraud,

d. defaulting on contracts, and

e. product adulteration.

The public perceives that the grain industry has along history of adulterating its product. The focusgroups indicated that farmer members are among theworst offenders. Some farmers placed wet spoiledgrain at the bottom of the load so it would not bedetected by sampling probes. Some cooperatives didthe same by loading low-quality grains at the bottomof trucks.

The focus group meetings consistently revealeddeclining ethical standards among cooperatives. Thegroups suggested that as many as one-third to one-halfof cooperative managers periodically engage in someform of unethical behavior. Moreover, interviewsreported that a substantial proportion of cooperativedirectors and members also engage in unethical behav-ior. Young farmers, particularly those with collegedegrees, were cited as displaying some of the mostunethical behavior.

Reasons for Unethical BehaviorThere is extreme pressure on managers to obtainhigher savings with lower prices. One focus groupmanager expressing his frustration said, “Any man-ager can make a profit if he does not have a con-science.”

In some cases, managers run the cooperative like aprivate business. The boards have relinquishedtheir roles. Without board participation, includingnecessary feedback, it is easy for the manager tobecome slack, let ethics slide, and submit to pres-sure from individual members, customers, andsalespeople.

There may be too many cooperatives. Losing a cus-tomer is very difficult to accept as the number offarms decline, the size of farms increases, and grossmargins decline. Moreover, individual members

often ask for a special deal but don’t want others toget it. Focus group participants suggested that somemembers are willing to let the cooperative bleedaway through special deals for individual gain.They felt that a reduction in the number of coopera-tives would relieve the pressure on managers tomake special deals.

With the complexity and increased size of coopera-tives and the proliferation of rules and regulations,the job of managing a cooperative is becomingincreasingly complex. And those most qualified toserve on the board of directors are often reluctant.Many members believe that there is little incentiveto serve on the board or to take the director’s roleseriously. The $25 to $35 honorarium per boardmeeting means directors frequently earn less thanminimum wage for their service.

The changing structure of agriculture means thatfewer farmers have greater economic power overcooperative managers and directors. Some focusgroup members believe that contracting with pro-ducers results in the cooperative competing withindividual producers.

Some believe that young farmers lack an under-standing and appreciation of the role of their owncooperative. Some commented that college educat-ed farmers display some of the most unethicalbehavior. Perhaps young farmers with heavy debtloads, along with less loyalty and wanting to besuccessful quickly, contributes to cutting cornersand unethical behavior.

Reduced farm profitability, along with weather-related disasters (floods and droughts), have placedmany farmers in precarious financial positions-some on the edge of bankruptcy. This may con-tribute to declining ethics. Some believe that ethicswould improve with better farm profits.

Regardless of the reasons for unethical behavior,there is a strong belief that agricultural cooperativesand agriculture would fare better if ethics in coopera-tives improved.

18

Chapter 5. Tools To Improve EthicalConduct in Cooperatives

“Good ethics doesn‘t just happen. It has to be planned. IfVerne E. Henderson

In his 1986 book “Everything I Need to Know, ILearned in Kindergarten,” Robert Fulgrum pre-sents a delightful essay on how many of the rules

needed to lead a successful life are taught in kinder-garten. Many ethical dilemmas can be avoided by fol-lowing some simple rules, but there are hazards inthinking that everything has a simple solution. In thissection we synthesize some of the major works thatmay help cooperatives improve their ethical standards.

Most philosophers believe that people rarely setout to behave unethically. Instead, moral and ethicalpredicaments emerge as a result of conflicting person-al, organizational, or professional obligations. Peopleoften lack adequate skills to negotiate these predica-ments or to achieve ethical decisionmaking. For coop-eratives, competitive pressures, growing organization-al complexity, and regulatory paradoxes increase thelikelihood that ethical dilemmas will confront man-agers, employees, directors, and members alike. Thefollowing examples (Laczniak and Murphy, 1991;University of Minnesota Extension Service, 1993) canguide cooperatives in becoming more aware of ethicalconsiderations and raising ethical standards. Theseexamples are intended as guides in deciding whether 8an action is ethical.

Guides for Deciding If an Action Is Ethical1. The Golden Rule

l “You act in a way that you would expect others toact toward you” or “treat others as you would liketo be treated.”

2. Professional Ethicl You take only those actions which would beviewed as “proper” by’an objective panel of yourprofessional colleagues.

3. Kant’s Categorical Imperativel Ask yourself, “What if everyone behaved thisway?”

4. Child on Your Shouldersl Would you proudly make the same decision ifyour young child were witnessing your choice?

5. “TV Test”l Could you explain and justify your actions to ageneral television audience?

Danger Signs of Unethical ActionsCooke (1991) has identified 14 danger signs with-

in organizations that suggest potential unethical con-duct. They may be appropriate for an initial assess-ment of whether your cooperative is at risk. Here isCooke’s checklist as modified to fit cooperatives:

1 .

2 .

3 .

4 .

5 .

6 .

A cooperative creates a climate for unethical behav-ior if it normally emphasizes short-term revenuesabove long-term considerations. Complex ethicaldilemmas require objective assessment that is notcontinually constrained by a myopic focus on nextquarter’s earnings. Most solutions require long-range commitments.

Any cooperative that routinely ignores or violatesinternal or professional codes of ethics is at risk.The risk is diminished if the cooperative integratesprofessional standards within the organizationalculture, regularly monitors compliance, and appliesappropriate sanctions.

Any cooperative that always looks for simple solu-tions to ethical problems and is satisfied with“quick fixes” is at ethical risk. The majority of situa-tions are ambiguous. Complexity requires a_thoughtful analysis.

A cooperative encourages ethical shortcuts if it isunwilling to take an ethical stand when there is afinancial cost to the decision. Any short-term gain isusually overshadowed by long-term financial lossthat follows the disclosure of unethical behavior.

Any cooperative that creates an internal environ-ment that either discourages ethical behavior orencourages unethical behavior is at risk. Too manycooperatives ignore the consequences of the implicitmessages sent by policy decisions that either direct-ly or indirectly discourage ethical behavior.Organizational culture is important in shaping val-ues that determine ethical responses.

A cooperative is at risk when it sends ethical prob-lems to the legal department. Ethics is not simply amatter of compliance with existing laws and regula-tions.

19

7. A cooperative is at ethical risk if it looks at ethicsso lely as a publi.c relations tool to enhance its image.A coopera tive’s ethical reputationis not determinedby a press release.

8 . Any cooperative that treats its employees different-ly than its customers encourages unethical behavior.It reflects an arrogance that creates distrust and hos-tility within the organization. This makes it difficult

s that may orig-to equitably resolve ethical dilemmainate outside of the cooperative.

9 .

10 .

11.

Any cooperative that is unfair or arbitrary in its per-formance appraisal standards is at risk. Lack ofstandardization leads to favoritism and cronyismthat tears at the social fabric of the organization andcreates a serious morale problem. When merit isreplaced by political influence, the ensuing organi-zational climate encourages unethical behavior.

ures orA cooperative is at risk if it has no procedpolicies for handling ethical problems.

Any cooperative that provides no mechanism forinternal whistle blowing is at risk. A cooperativemust provide ways to bring potential problems tothe attention of upper management and otherinterested parties, otherwise it appears that unethi-cal behavior is tolerated, if not condoned.

12. Any cooperative that lacks clear lines of communi-cation with the organization encourages unethicalbehavior. The problems get out of hand beforemost managers realize one exists. Cover-upattempts usually backfire.

13 .

14 .

Ethical risk occurs if a cooperative is only sensitiveto the needs and demands of the shareholders.Other individuals and groups also have a stake inthe actions of the cooperative and should not beignored.

Any cooperative that encourages people to leavetheir personal ethical values at the office door is atrisk. Whenever there is a sharp line drawnbetween personal values and work values, ethicsare at risk. Many cases of cooperative improprietycould be avoided if people would ask themselvesif the values conveyed by the cooperative wereconsistent with their personal ethical beliefs.

Exercise 6 provides a copy of this checklist thatmay be photocopied and used in a group setting toassess whether the cooperative is at risk.

How To Improve Ethical ConditionsVon der Embse (1984) described six actions an

organizationmembers.

should take to improve the ethics of its

1. Ethics management-Th .e organization must makeethics an integral part of management decisions.

2. Issue identification-The organization must distin-guish the ethical and moral issues of day-to-dayactivities within the organization and decide whichissues (and activities) take precedence.

3. Values Clarification-Organizational values shouldbe consistent with the larger culture.

4. Decisionmaking-In complex decisionmaking,is usually more than one ethical choice.

there

5. Organizational Support-Cultural and organiza-tional supports must be identified. Ethicaljudg-ments should not be ad hoc, but rather rooted insubstantive principles and applied consistently.

6 Commitment-Decisions imply and require com-mitment by all stakeholders in the organization.

These six steps demonstrate that improvingethics should be approached as a long-term processrather than an event. Simply announcing or unveilinga new code of ethics is inappropriate, unless it hasbeen developed through a consensus process involv-ing all stakeholders.

Is An Action Ethical?Laczniak and Murphy (1991) suggested asking

the following questions to assess whether a contem-plated action is ethical or has possible ethical conse-auences:

1

1 .

2 .

Does the contemplated action violate law?

Is this contemplated action contrary to widelyaccepted moral obligations such as duties of fidelity,gratitude, justice, obeying the law, and providingbenefits to members?

20

3 . Does the proposed action violate any other s.pecialobligations which stem from tenets of cooperativeorganization?

4. Is the intent of the contemplated action harmful?

5 .

6 .

Would people or organizations be damaged by thecontemplated action?

Is there a satisfactory alternative action which pro-duces equal or greater benefits to the parties affect-ed than the proposed action?

Does the contemplated action infringe upon theinalienable rights of the consumer (right to informa-tion, to be heard, to choose, and to redress)?

1. Does the proposed action leave another person orgroup less well off? Is this person or group alreadya member of a relatively underprivileged class?

Aram (1987) contends that many ethical predica-ments can be avoided by giving priority attention togovernance, negotiation, and procedure. Organizationsneed to “confirm or redefine their objectives, clarifyambiguities that arise in tasks and responsibilities, andupgrade human resources in capabilities and expecta-tions” (Aram, 1987:38). For cooperatives, understand-ing their reason for existence, goals and mission, howdecisions are made, and who is responsible may helpavoid unethical behavior.

All the cooperative’s employees and membersshould understand its goals and objectives.Responsibility for communicating them resides withthe board of directors and manager. An organizationthat values ethical conduct and moral behavior cancreate a climate that fosters ethical decisionmaking byits members. Hoffman (1986) identifies two necessarycriteria for ethical excellence within organizations.

The first is the moral autonomy of the individualwithin the organization and the second is the ethicalorganizational (corporate) culture. Decisions to behaveethically or unethically are influenced by individualand situational factors-background, personality, deci-sion history, managerial philosophy, and reinforce-ment, among others. Management of ethics requiresthat all levels of the organization “engage in a concen-trated effort which involves espousing ethics, behav-ing ethically, developing screening mechanisms, pro-viding ethical training, creating ethics units, and rein-forcing ethical behavior” (Stead et al, 1990:233).

Creation of an ethical climate within the organi-zation is paramount. “Policy is implicit in behavior”(Andrews 1989:102). Business organizations say muchmore than they realize by the ethical aspects of prod-uct quality, personnel, advertising, and marketingdecisions. But as “in all policy formulation and imple-mentation, the deportment of management, develop-ment of relevant policy, and training in its meaningand application are not enough” (Andrews 1989:103).Continual monitoring or auditing of organizationalethics is also required to avoid circumventing organi-zational responsibility for ethics management.

Ethics ManagementCommunication is critical to the management

and assessment of organizational ethics. Organizationsmust determine their ethics policy and make it explicit.The policy should be expressed in organizational lan-guage and written statements which both prescribeand continually reinforce exemplary behavior, whileprescribing and condemning unacceptable behavior.

Most commonly, these statements take the formof published codes of ethics, but they may also be indi-vidual policies regarding conflicts of interest, discrimi-nation, harassment, and member loyalty. Codes of con-duct or ethics are effective only if backed up by a con-ducive culture and attention that communicates theirimportance.

“Many organizations use training sessions to dis-cuss the problems of applying their ethical standards.Such discussion, if carefully conducted, can reveal theinadequacy or ambiguity of present policy, new areasin which the organization must take a unified stand,and new ways to support individuals in making theright decisions” (Andrews, 1989:102). Ethics seminars,programs, training and education, ethics “audits,” andreview panels are additional mechanisms.

Addressing Ethical IssuesAndrews (1989:100-101) suggested that organiza-

tion members need three qualities to maintain ethicalconduct:

1. Competence to recognize ethical issues and to thinkthrough the consequences of alternative resolutions.

2. Self-confidence to seek out different points of viewand to decide what is right at a given time andplace and in a particular set of relationships and cir-cumstances.

21

3. Willingness to make decisions when all that needsto be known cannot be known and when the ques-tions that press for answers have no established andunquestionable solutions.

While cooperatives should be alert to these quali-ties when recruiting employees, these traits can beacquired and honed by training. Individuals can bene-fit from training and skill building in ethical decision-making. The first step is to understand how decisionsare made. Few cooperative decisions are based onevaluating options and solutions.

This is one reason that ethical principles anddecisionmaking must be incorporated into an organi-zation’s day-to-day thinking and activities (Smith,1990). “Most employees want to act ethically and workwith an organization that has integrity” (Finn, 1988:8).Cooperatives must demonstrate support for ethicalconduct. A comprehensive code of ethics and employ-ee training are key structures that can provide thissupport.

Codes of ethics and training on ethical decision-making provide advance exposure to potential ethicaldilemmas; coupled with training in the application ofproblem solving techniques, managers, directors, staff,and members are provided with increased likelihoodthat they will make the right decisions when theyencounter similar dilemmas on the job.

Although some debate whether codes of ethicsare effective in guiding ethical decisionmaking withinorganizations, the dominant view is that these codesare vital in communicating the expectations and com-mitment of management to maintain high ethical stan-dards and business practices. The literature providesnumerous examples of codes of ethics used in busi-nesses, corporations, various professions, academicand research groups, governmental agencies, andnational and local cooperatives. Although each hasunique aspects, there are also many similarities.

Madsen and Schafritz (19902 19-220) reviewedhundreds of corporate codes of ethics and identifiedseveral similar “clusters” including:

A. Be a dependable organization citizen.

L.

Don’t do anything unlawful or improper that willharm the organization.Be good to our customers.

To be a “dependable organization citizen” codes ofethics prescribe:

1. Demonstrate courtesy, respect, honesty, and fair-

B .

ness in relationships with customers, suppliers,competitors, and other employees.

Comply with safety, health, and security regula-tions.

Follow directives from superiors, be punctualand reliable in attendance, dress in businesslikeattire, and manage personal finances in a man-ner consistent with employment by a responsiblecompany.

These codes also seek to censor use of abusive lan-guage or actions, possession of firearms, and use ofillegal drugs or alcohol on company premises. Toavoid unlawful or improper conduct that wouldharm the organization, corporate codes prescribe:

1 .

2 .

3 .

4 .

5 .

6 .

Maintain confidentiality of customer, employee,and corporate records and information.

Avoid outside activities which conflict with orimpair the performance of duties.

Make decisions objectively without regard tofriendship or personal gain.

Conduct personal and business dealings in com-pliance with all relevant laws, regulations, andpolicies.

Comply fully with antitrust laws and trade regu-lations.

Follow accepted accounting rules and controls.

These codes also seek to prohibit “the acceptanceof any form of bribe; payment to any person, business,political organization, or public official for unlawful orunauthorized purposes; provision of false or mislead-ing information to the corporation, its auditors, or agovernment agency; use of company property orresources for personal benefit or any other improperpurpose; and having any interest in any competitors orsupplier of the company unless such interest has beenfully disclosed to the company.”

C. To be good to customers, codes of ethics prescribe:

1. Strive to provide products and services of thehighest quality.

2. Perform assigned duties to the best of your abili-ty and in the best interest of the organization, itsshareholders, and its customers.

3. Convey true claims for products.

Other recommendations were: “exhibit standardsof personal integrity and professional conduct; reportquestionable, unethical and illegal activities to yourmanager; seek opportunities to participate in commu-nity services and political activities; conserve resourcesand protect the quality of the environment in areaswhere the company operates.” And the “unclustered”category included prohibitions against racial, ethnic,religious, or sexual harassment, and against membersof the organization recommending attorneys, accoun-tants, insurance agents, stockbrokers, real estateagents, or similar individuals to customers.These sample entries demonstrate the range of con-cerns expressed within codes of ethics:

1.

2.

3 .

4 .

5 .

6 .

Obeying federal, state, and local laws is a minimumbasis for measuring ethical and legal conduct.

Cooperative policy does not sanction accepting giftsexcept for items of nominal value. This prohibitiondoes not preclude exchange of ordinary hospitalitysuch as lunch or dinner.

Individual self-interest should never be permittedto conflict with or take precedence over the interestof the cooperative. Be alert to all potential conflicts,direct and indirect, and resolve all such perceivedconflicts in the cooperative’s favor. A conflict whichmay appear to be present should be disclosedimmediately to the individuals’ superior or theboard of directors.

Honesty and integrity are essential to maintainingthe company’s respected name. Establishment andpreservation of such respect is a factor in everydecision and activity.

Failure to consider the rightness of actions wouldjeopardize the integrity of the cooperative.

Perjury or any illegal act ostensibly taken to “pro-tect” the company is wrong, just as is a sale madebecause of deception. Equally wrong is a produc-tion quota achieved through questionable means orfigures. The end does not justify the means.

The cooperative will not engage in any activity,regardless of its profitability, if it is incompatiblewith ethical behavior. Emphasis on employee safety,product quality, and equitable dealings with cus-tomers and suppliers relates to ethical considera-tions as much as economics.

The directors and employees pledge themselves tocomplete loyalty to the cooperative that elects oremploys them and will:

a. aggressively pursue its objectives;

-b. hold inviolate the confidential relationshiDbetween the individual members of the coopera-tive and us and the confidential informationentrusted to use thorough the cooperative office;

C serve all members of the cooperative impartially;

d . provide no special privilege to any individualmembers, nor accept special personal compensa-tion from any individual members, except withthe knowledge and consent of all other members;

e. neither engage in, nor tolerate, any exploitation of

f .

b‘.

the cooperative;

recognize and discharge their responsibility andthat of the cooperative to uphold all laws andregulations relating to cooperative activities;

exercise and insist on sound business principin conducting the cooperative’s business;

les

h. use only legal and ethical means in seeking toinfluence legislation or regulation;

i. issue no false or misleading statements to themembers or public;

j. refrain from the dissemination of any maliciousinformation concerning other cooperatives orcompetitors;

k. accept responsibilitv for cooperating in every rea-

l

sonable way with other cooI;era tivevS;

use every 0pportunity to improve public under-standing of the principlesT of the cooperative formof business enterprise; and

23

m. maintain high standards of personal conduct.

Most current codes focus on acts that are illegaland punishable by law, but they fail to address unethi-cal behaviors related to executive character, productquality, or civic responsibility, and few codes indicatebehavior that is acceptable in specific situations(Raiborn and Payne, 1990).

Raibom and Payne caution that codes of ethicsmust be prepared “for the right reasons,” avoiding anyimplications that they are only there for “public rela-tions or window dressing.” They cite as major weak-nesses those codes that are “accusatory, threatening,demeaning, unrealistic, or excessively legalistic”(1990:883). A successful code of ethics can guide coop-eratives in ethical decisionmaking. But such codesneed to be dynamic, ever-evolving documents able torespond to forces internal and external to the organiza-tion in order to reflect real and ongoing expectations ofcooperative membership (Backof, 1991).

. If cooperatives want to communicate their con-cern for a high level of ethical standards in the conductof business and in the social responsibility of man-agers, directors, members, and employees, they willrequire a code of ethics tailored to their unique circum-stances. Such a code might include prescriptions forthe “willing compliance with the law, the exercise ofdue care, fidelity to special responsibilities, compliancewith cooperative tenets and principles, trust and loyal-ty, avoidance of the appearance of a conflict of interest,acting in good faith in negotiations, respect for humanwell-being, and respect for the liberty and constitu-tional rights of others (Dean, 1992).

It is important to determine the level of specifici-ty of a code of ethics, finding a balance between toomuch and too little detail. Codes require clarity, com-pleteness, and enforceability: 1) they must be writtenin an understandable, concise, specific, and honestway; 2) they should cover virtually any conduct, withspecific descriptions regarding expected behavior aswell as violations; and 3) sanctions and punishmentmust be spelled out and carried out to reinforce thatthe cooperative is serious about compliance.

At the same time, because all violations cannot bespelled out in advance, the codes of ethics should becomprehensive enough to “envelop the spirit of ethicsand morality” (Raiborn and Payne, 1990:883).

Although codes of ethics are critical, they do not,in themselves, contain the “emotional power of com-mitment to quality objectives-among them compli-ance with law and high ethical standards-is an orga-

nizational achievement” (Andrews, 1989:104). Source:Adapted from Iowa Institute of Cooperatives, 1992:Von der Embse, 1984; AGRI Industries, 1983.

Commitment BuildingOrganizations need to explore the processes

essential to building commitment. This is particularlyimportant to maintaining cooperative loyalty. Butremember, commitment works two ways. “If loyaltyand commitment aren’t returned or demonstrablyappreciated, they will wither over time, and if loyaltyis called on too frequently, it can be exhausted” (Craig,1982083:255).

Craig (1982-83:260-262) discusses six commit-ment-building processes:

Quality products and services build commitment.“A cost/benefit analysis can convince members thatit is in their interest to be committed to the organi-zation.” However, this is the most fragile form ofcommitment, from which members defect in toughtimes.

Investing money or time in the organization resultsin psychological commitment. “The need to sacri-fice time or invest money to obtain membership inthe cooperative reinforces the value of belonging.”Their commitment protects and enhances theirinvestment.

Receiving a helping hand frequently results in feel-ing indebted to the organization. “If the cooperativesticks by its members in time of need, it’s easier forthe members to feel close to the organization.”

4. Involvement through an elected position in cooper-atives or through pirticipation in young cooperatorprograms develops stronger loyalties. “The processof involvement in the organization strengthenscommitment.” A second form of involvement is toact as advisors to directors, just as a representativedemocracy has a constituency or to act in groups ofdelegates and or within informal discussions to dis-seminate information.

5 “Cooperative education enables people to learnabout the philosophy of cooperation and valuesunderlying it, and relate them to their own ideologi-cal values... The process forces people to accept orreject the philosophy of cooperation. In accepting it,they will increase their ideological commitment tothe organization.. . (But) this process must be contin-

24

uous... Material should emphasize cooperative gameswhere everybo’dy wins, rather than intensely competi-tive games which teach students to lose and considerthemselves failures.”

6. Marketing strategies have a “direct relationship tohow members evaluate the cooperative andwhether they develop commitment.”

Commitment and loyalty both imply that mem-bers are part of their organization and see it differentlyfrom others in the community. Commitment processesare built or eroded in the day-to-day interactionbetween the member and people within an coopera-tive. Member commitment can be changed if a cooper-ative is prepared to evaluate itself and analyze its com-mitment-building processes.

Chapter 6. Materials for CooperativeEthics Workshops

The authors believe that a series of four l-hourworkshops for employees, directors, and evenmembers will help create a higher awareness of

the major roles of ethics in cooperatives. The chaptersin this report can serve as background reading prior toeach workshop. In addition, a series of nine exercisesare included in this chapter to facilitate discussion andunderstanding of the materials.

Each of the four workshops should focus on theseassignments:

Workshop Reading Materials Exercises

1 Chapters 1 and 2 1

2 Chapters 3 and 4 2,3,4 and 5

3 Chapters 5 and 6 6and7

4 Chapter 6 8,9, and 10

Each workshop should follow a discussion for-mat with an assigned discussion leader, generally themanager or board president. Obviously, the discussionleader should be familiar with the materials in thisreport. The cooperative leadership should also be firm-ly committed to integrating ethics into everyday deci-sions and actions.

Chapter 2 discusses the importance for membersto distinguish between morals and ethics. Exercise 1discusses the differences between morals and ethics,and helps to identify four categories of people theyencounter. Readers are encouraged to list examplesthat represent each of the four types.

Chapter 3 discusses the uniqueness of coopera-tives and how they differ from other forms of business,and why ethics are critical for cooperatives.

Chapter 4 talks about growing concerns aboutperceived declines in ethical standards. Exercise 2solicits opinions of cooperative employees, directors,and members about cooperative ethics. If there isagreement that ethics have declined, people will bemore motivated to work through these materials thanif it is not viewed.as a problem. Exercise 2 will helppeople understand where ethics have declined and tocompare their perceptions with those of others in thegroup.

Exercise 3 provides a place to record what coop-erative employees, directors, and members perceive asunethical conduct. In addition to helping assess theimportance of ethics to a cooperative, this exercise willhelp identify ethical concerns that should beaddressed. Many causes of unethical conduct havebeen discussed in Chapters 3 and 4; however, this exer-cise provides an opportunity to identify other factorsthat have contributed to the erosion in ethics.

Chapter 4 also presents some of the excuses oftengiven for unethical conduct. Exercise 4 seeks ideasfrom members about why cooperative employees,directors, and members may engage in unethicalbehavior. Exercise 5 builds on Exercise 4 by asking rea-sons (excuses) why cooperative employees, directors,or members engage in unethical behavior.

Exercise 6 is a modified checklist to assesswhether participants judge their cooperative to be atethical risk.

Exercise 7 is designed to help cooperativeemployees, directors, and members decide whetherdecisions or actions are ethical.

Exercise 8 involves all cooperative employees,directors, and members in upgrading ethical stan-dards. In addition to calling attention to six actionsteps, this exercise provides space to record what eachcooperative member could do to raise ethical aware-ness and standards.

Exercise 9 begins the process of developing acode of ethics for each cooperative. It may be useful forreaders to review the samples of ethical codes in com-pleting this exercise.

25

Exercise 10, an article in the WLIII Street Journnl,reports how people respond differently to allegationsof illegal and unethical behavior. As a “real life” exam-ple, this exercise helps clarify why people feel differ-ently about ethical issues, and highlights the impor-tance of business ethics.

Once these exercises have been completed, con-sider how a cooperative member should respond tothe examples provided. Twenty-five real life examplesgleaned from the focus groups provide discussion top-ics to consider.

The appendix provides additional materials thatleaders may find useful in small group discussions.These materials are designed to be made into trans-parencies for overhead projection. While each set ofmaterial could be used in more than one workshop, wehave indicated which materials are best suited for aparticular workshop.

26

Appendix

Background MaterialsExercise 1.

Exercise 2.

Exercise 3.Exercise 4.Exercise 5.Exercise 6.Exercise 7.Exercise 8.

Exercise 9Exercise 10.

Understanding the Difference BetweenMorals and EthicsHow Have Ethics Changed in the Past10 Years?Ethics in CooperativesWhat Causes Unethical Behavior?Excuses, Excuses, ExcusesIs Your Cooperative at Risk?Ethics ChecklistOrganizational Actions To ImproveActionsToward Developing a Code of EthicsA Case Study of Ethics

Ethical Discussion TopicsThrough a series of interviews and focus group

meetings with cooperative managers and board mem-bers, we discovered many ethical issues must be facedon a daily basis. Some are unique to cooperatives andothers are common in the business world. Some areviewed as very important and others as minor issues.Below are a set of ethical scenarios that describes ethi-cal issues in cooperatives. Now that you have readthese materials, how would you resolve these issues iffaced with these circumstances?

1.

2 .

3 0

4.

There is considerable pressure on the sales staff toachieve sales quotas established for the cooperative.As a recent hire, you worry that not meeting yoursales quota will reflect poorly on your performance.As a result, you encourage patron members to buyproducts they really do not need.

To encourage higher attendance and participation atthe annual meeting, you use cooperative funds tobuy food, beer, and door prizes.

You have a portable hog feeder that has been ininventory a long time. For some reason, the feederhas not sold and you would like to move it. Theoriginal price was $895. To sell it, you list a newprice of $1,100, then show a sale price of 50 percentoff or $550.

A long-term member of the cooperative, who hasbeen a faithful patron, is reportedly having financialdifficulty paying his bills. You know his crop is notvery good and want to help him. As harvest gets

5 .

6 .

7.

underway and he brings his crop to the elevator,you note that the first two loads were surprisinglygood quality grain. However, the next several loadshave been “plugged” with spoiled grain concealedin the bottom of the truck.

The nephew of one of the board members whograduated as valedictorian from the local highschool is back home after successfully completinghis first year of college. The board member asks ifthere is any way the cooperative can hire hisnephew for the summer. You like the young man,but also know that several other equally deservingyouth are looking for a summer job.

You have served on the board of directors for 27years through good times and bad. As you contem-plate your eventual retirement, you have consid-ered not running for re-election. However, the man-ager wants you to run for one more term. Yourheart is really not in to continuing to serve,although the annual meetings provide a nice win-tertime vacation for you and your wife.

As president of the board of directors you have dis-covered that you can buy the same herbicide fromanother local private competitor at a better price.You feel that you should be loyal to your coopera-tive, but during these tough times on the farm, adollar here and a dollar there spells considerablesavings. You approach the manager about matchingthe competitor’s prices. The manager explains thatit is not possible to give you a preferential price dis-

.count. So you send your son to the competitor tobuy the herbicide.

As manager of the cooperative, you observe yourlong-trusted secretary putting computer discs andnotepads in a briefcase. There is a strict code of ethicsthat requires that you fire the secretary on the spot.

A friend at work asks whether you would like atake-home copy of the expensive computer softwareprogram that you know is protected by copyright.What would you do?

10. As a board member you hear via the grapevine thatthe manager and an employee, both of whom aremarried to others, are romantically involved. Whileyou personally view such behavior as immoral,you “mind your own business” and say nothing.

27

11 . To gain market share for the cooperative, you offera bonus to farmers on the fringe of your trade areato attract additional business although you knowthat this practice will further jeopardize the viabili-ty of an adjacent cooperative.

13IL. At the coffee shop you and several other coopera-

13.

14.

15 .

16 .

17 .

18.

19 .

28

tive managers huddle and decide what dryingcharges will be for the coming harvest.

In response to a national promotional campaign,you place a large order for a new product andreceive two free airplane tickets and motel accom-modations for a week’s vacation to Hawaii.

The cooperative board has requested moredetailed information about the profit margins. Youfear if members learn of the margin levels, com-petitors would soon learn of the marketing strate-gy. Hence, you decide to withhold the information.

Your daughter is moving a few miles away into anew apartment. You do not own a pickup truck.Although the cooperative has a strict policy forbid-ding personal use of equipment and tools, you usethe cooperative’s pickup to move your daughterinto the apartment.

You observe an employee playing a computergame on the cooperative’s computer during workhours.

A loyal patron has had a major illness in the familyand is not able to make his payment for seed andfertilizer. You have every reason to believe that thepatron is a good credit risk although it is againstthe cooperative policy to extend credit beyond 30days.

Your cooperative has the opportunity to sign along-term business agreement with a private com-pany that will be mutually advantageous. Thisagreement will enable your company to expand itsmarket share and will return handsome profits toboth parties.

In response to perceived problems in the timeli-ness of fertilizer application during spring plant-ing, your cooperative purchased a new applicatortruck which has turned out to be a disastrousinvestment. Suddenly, everyone has purchasednew equipment and application charges have been

20 .

21 .

22 .

23 .

24.

25 .

very competitive. Getting farmers to accept yournew service has been difficult and everything elsethat could has gone wrong. You are only 1 yearaway from retirement and are pretty sure that noone will discover this bad decision until after youretire.

You just received a phone call from an informantthat a neighboring cooperative has an extremelyhigh price posted for No. 2 yellow corn. Eitherthey have made a dreadful mistake or they havereally scored big on filling a contract. At any rate,you decide to have your informant sell 500,000bushels for you to the competing cooperative. Afew days later you learn that they had made a mis-take on posting the price and they stand to lose$50,000 on your contract.

In response to less government payments on stor-ing corn, slim margins, and the need to boost rev-enues, you have encouraged the board to offercontract feeding of hogs. This way the cooperativewill boost feed sales and the profits from hog feed-ing will improve the overall financial position ofthe cooperative.

The legislature has approved cooperatives owninglivestock. Several cooperative members haveexpressed interest in contract feeding while othersfeel that this new venture may contribute to morehogs on the market and reduce their own profits.

Your nephew, who works in a large brokeragehouse, has given you (the cooperative manager) ahot tip about a potential stock split with a majorprivate competitor.

The manager of the cooperative who has been inthis role for 25 years, has announced his intentionto retire in the next 2 years. As part of the comingtransition, the manager would like to hire an assis-tant who he could train as his successor. The boardagrees with the transition plan except that theywill reduce his salary by the amount that is paid tothe assistant manager.

It has been brought to the attention of the boardand manager that seemingly the most unethicalbehavior is demonstrated by younger, well-educat-ed, college graduates who are intent on “showingthe community how to get ahead.” What should bedone?

26 . The manager has just learned of a trade secret. Ifhe acts on this tip, the cooperative stands to gainconsiderably. However, he also knows that if heshares this information with the board, some ofthem will likely share the information with othersin the community including the manager of thecooperative in the adjacent town since two of hisboard members are also members in that coopera-tive. In order to keep the information secret, hedecides not to share the information with theboard although there is some reason to believe thatboard approval might be necessary.

SummaryAs you discuss these examples, you probably

heard many different perspectives and solutions. Itmay have surprised you to have heard the comment,“Well, it depends on the situation.” Listening to thearguments presented by others reflects the spectrum ofethicality.

Every ethical decision has its own peculiar andunique situation and context. This leads many to con-clude that we live in a period of ethical ambiguity orwhat has been termed situational ethics. Business deci-sions in our pluralistic society require thoughtful andtime-consuming responses to most ethical questions.

For example, where do we draw the line aboutstealing? Stealing is illegal, but often defined in termsof value of the stolen item. Yet, from an ethical deci-sion, stealing a paper clip or rubber band is no differ-ent than stealing an object worth much more in value.If we recognize the relativity in ethics, perhaps we willbe better able to make ethical decisions.

Take the example of the new salesperson who,fearing losing his job if he did not meet sales quota,sells products to patrons who really didn’t need them.Can this behavior be excused or justified? The sales-person is caught between the expectations of the mer-chandising manager, the board, and the individualmembers. Is the salesperson wrong to do all he can toprotect his job and family?

Some may argue about the manager using coop-erative funds to provide food, beer, and door prizes forthe annual meeting. In some communities, buying beerwith cooperative funds is wrong, but food and doorprizes are legitimate expenses. On the other hand,using cooperative funds to buy food or prizes, includ-ing alcoholic beverages, may be acceptable. Again, rel-atively mundane decisions often involve ethical deci-sions and reflect community norms, values, and cus-

toms. In some cases, alcohol would not be a problem;in other cases, it may violate the norms and customswithin the membership.

An old Chinese proverb says, “If you don’t knowwhere you are going, it doesn’t make any differencewhich road you take.” If applied to decisionmaking incooperatives, unless you know the mis‘sion of

l ethi.cserative and are committed to its ideals,the coop-may be of

secondary importance. Too often we have heard thatdecisions must be based upon the bottom line-is itprofitable, does it make economic sense, will it improvethe financial status of the cooperative? Yet, many deci-sions only indirectly affect the bottom line and some-times the relationship is not directly tied to profits.

For example, the cooperative manager allows abasketball hoop to be placed in the repair shop. Theinsurance consultant would likely conclude that itexposes the cooperative to a potential lawsuit if anemployee gets injured while shooting baskets with theboys. The industrial engineer might concl

If off duringencourages employees to go0ude thatwork ho

iturs.

Another expert might conclude that i t would befor the employees to shoot baskets a t the fitness

bettercenter.

The manager, who has permitted the basketball hoop,may likely understand that employees shooting bas-kets in the repair shop allows them to blow off somesteam after some frustrations, and that a cooperativeruns best when employees have team spirit. Being ateam both on and off the court leads to a successfulcooperative.

Without understanding the importance of basket-ball in the local community, appreciating the fact thatthere is no recreational center in the community, andother such variables, this decision would not appear tobe related to the financial success of the cooperative.However, retaining good employees by allowing themto use the facility for recreation (presumably duringnonwork hours) was a conscious ethical decision.

Each example points out the problems weencounter when there are no rules about what youshould do. There can’t be a rule for every decision, buta code of ethics would help establish general princi-ples and who should decide. Depending upon whetherYou place emphasis upon character, compliance, orconsequence, ethicality will, in large measure, deter-mine how you would resolve each of the precedingethical problems.

While each of us has an idea about what wewould do, there is no clear answer. In most cases, thereis no singleeration and

bes1

de1t solutioniberation

. Only through carefulcan cooperatives demo

consid-Jnstrate

their uniqueness.

29

Ethics Checklist

1 .

2 .

3 .

4 .

5 .

6 .

7 .

8 .

Does the contemplated actionviolate law?

Is the contemplated action con-trary to widely accepted moralobligations such as duties offidelity, duties of gratitude,duties of justice, duties to obeythe law, or duties to providebenefits to members?

Does the proposed action violateany other special obligationswhich stem from tenets of coop-erative organization?

Is the intent of the contemplatedaction harmful?

Are there any major damages topeople or organizations that arelikely to result from the contem-plated action?

Is there a satisfactory alternativeaction which produces equal orgreater benefits to the partiesaffected than the proposedaction?

Does the contemplated actioninfringe upon the inalienablerights of the consumer (right toinformation, to be heard, tochoose and to redress)?

Does the proposed action leaveanother person or group lesswell off? Is this person or groupalready a member of a relativelyunderprivileged class?

Gary Edwards’ 7 StepsTo Managing EthicalEnvironments

1. Leadership at the top and at alllevels of management.

Clear standards of conduct.

Communication of values andstandards.

Effective compliance monitor-ing.

5 .

6 .

Ethics ombudsman.

Proper goal setting and properincentives.

7 . A continuing commitment.

The Golden Rule

Act in a way that you would expectothers to act toward you.

The Professional EthicTake only actions which would beviewed as proper by an objectivepanel of your professional col-leagues.

Kant’s Categorical ImperativeAct in such a way that the actiontaken under the circumstancescould be a universal law of behav-ior for everyone facing the samecircumstances. *

The TV TestA manager should always ask,“Would I feel comfortable explain-ing this action on television to thegeneral public?”

Source: Edwards, 1993

Source: Laczniak and Murphy, 1991

Source: Laczniak and Murphy. 1991

30

Cooke’s 14 Danger Signs

1.

2 .

3

4 .

5 .

If a cooperative normallyemphasizes short-term revenuesabove long-term considerations,it is creating a climate for uneth-ical behavior. Complex ethicaldilemmas require objectiveassessment that is not continual-ly constrained by a myopicfocus on next quarter’s earnings.Solutions require long-rangecommitments.

Any cooperative that routinelyignores or violates internal orprofessional codes of ethics is atrisk. The risk is diminished ifthe firm integrates these profes-sional standards within the cor-porate culture and regularlymonitors compliance andapplies appropriate sanctions.

Any cooperative that alwayslooks for simple solutions to eth-ical problems and is satisfiedwith “quick fixes” is at ethicalrisk. The majority of situationsare ambiguous. Complexityrequires a thoughtful analysis.

If a cooperative is unwilling totake an ethical stand when thereis a financial cost to the decision,it encourages ethical shortcuts.Any short-term gain is usuallyovershadowed by long-termfinancial loss that follows thedisclosure of unethical behavior.

Any cooperative that creates aninternal environment that eitherdiscourages ethical behavior orencourages unethical behavior isat risk. Too many firms ignorethe consequences of the implicitmessages sent by policy deci-sions that either directly or indi-rectly discourage ethical behav-ior. Internal environment or cor-

6 .

7 .

8 .

9 .

10 .

11 .

porate culture is important inshaping values that determineethical responses.

When a cooperative usuallysends ethical problems to thelegal department, it is at risk.Ethics is not simply a matter ofcompliance with existing lawsand regulations.

Any cooperative that looks atethics solely as a public relationstool to enhance its image is atethical risk. A firm’s ethical rep-utation is not determined by apress release.

Any cooperative that treats itsemployees differently than itscustomers encourages unethicalbehavior. It reflects an arrogancethat creates distrust and hostilitywithin the organization. Suchdistrust and hostility makes itdifficult to equitably resolve eth-ical dilemmas that may origi-nate outside of the firm.

Any cooperative that is unfair orarbitrary in its performanceappraisal standards is at risk. Alack of standardization leads tothe kind of favoritism andcronyism that tears at the socialfabric of the organization andcreates a serious morale prob-lem. When merit is replaced bypolitical influence, the ensuringcorporate climate encouragesunethical behavior.

Any cooperative that has noprocedures or policies for han-dling ethical problems is atrisk.

Any cooperative that providesno mechanism for internalwhistleblowing is at risk. Afirm must provide ways inwhich potential problems can

12 .

13 .

14.

be brought to the attention ofupper management and otherinterested parties, otherwise itappears that unethical behavioris tolerated, if not condoned.

Any cooperative that lacks -clear lines of communicationwith the organization encour-ages unethical behavior. Theproblems get out of handbefore most managers realizethere is a problem. Anyattempts to cover it up usuallybackfire.

Any cooperative that is onlysensitive to the needs anddemands of the shareholders isat ethical risk. Other individu-als and groups have a stake inthe actions of the firm shouldnot be ignored.

Any cooperative that encour-ages people to leave their per-sonal ethical values at theoffice door is at risk. Wheneverthere is a sharp line drawnbetween personal values andwork values, ethics are at risk.Many cases of corporate impro-priety could be avoided if peo-ple would ask themselves if thevalues conveyed by the firmwere consistent with their per-sonal ethical beliefs.

Source: Cooke, 1991

31

Six Organizational ActionsTo Improve Ethics

Commitment-Building Process

1. Quality products and servicesbuild a utilitarian form of com-mitment. A cost/benefit analysiscan convince members that it isin their interest to be committedto the organization. However,this is the most fragile form ofcommitment, from which mem-

1 .

2 .

3 .

4 .

5 .

6 .

The organization must makeethics an integral part of man-agement decisions. (ethics man-agement)

The organization must distin-guish the ethical and moraldimensions of day-to-day activi-ties within the organization anddecide which dimensions (and.activities) take precedence.(issue identification)

Organizational values should beconsistent with the larger cul-ture. (values clarification)

It should be understood that incomplex decision- making, thereis usually more than one ethicalchoice. (decisionmaking)

Organizational and cultural sup-ports must be identified. Ethicaljudgments should not be ad hoc;they must be rooted in substan-tive principles and applied con-sistently.

port)

(organizational sup-

Decisions imply and requirecommitment by all stakeholdersin the organization. (commit-ment)

Source: Von der Embse, 1984

6

intensely competitive gameswhich teach students to lose andconsider themselves failures.

Marketing strategies have adirect relationship to how mem-bers evaluate the organizationand whether they develop com-mitment.

bers defect in a crisis.Source: Craig, 1982-83

2. Investing money or time in theorganization results in psycho-logical commitment. The need tosacrifice time or invest money toobtain membership in an organi-zation reinforces the value ofbelonging. Commitment pro-tects and enhances investment.

3. Receiving a helping hand fre-quently results in feeling indebt-ed to the organization. If it sticksby its members in time of need,it’s easier for them to feel thatthey should be loyal.

4. Involvement through an electedposition in cooperatives orthrough participation in youngcooperator programs developsstronger loyalties. The process ofinvolvement in the organizationstrengthens commitment. A sec-ond form of involvement is toact as advisors to directors.

5. Cooperative education enablespeople to learn about the philos-ophy of cooperation and valuesunderlying it, and relate them totheir own ideological values.The process forces people toaccept or reject the philosophyof cooperation. In acceptance,they increase their ideologicalcommitment to the organization.But this process must be contin-uous. Material should empha-size cooperative games whereevervbodv wins, rather than

32

Codes of Ethics

3 .

4.

5 .

(Samples)Adherence to the laws of the U.S.is minimum basis for measuringethical and legal conduct.

Company policy does not sanc-tion the acceptance of gifts exceptfor items of nominal value. Thisprohibition does not precludeexchange of ordinary hospitalitysuch as lunch or dinner.

Individual self-interest shouldnever be permitted to conflictwith or take precedence over theinterest of the company Be alertto all potential conflicts, directand indirect, and resolve all suchperceived conflicts in the compa-ny’s favor. If a conflict evenappears to be present, it shouldbe disclosed immediately to theindividuals’ superior or theboard.

Honesty and integrity are essen-tial to maintenance of therespected name enjoyed by thecompany. Establishment andpreservation of such respect is afactor in every decision andactivity.

If profitability is incompatiblewith ethical behavior in a busi-ness, (our organization) will notengage in that activity. Emphasison employee safety, productquality, and equitable dealingswith customers and suppliersrelates to both economics andethics.

6. Failure to properly consider therightness of our actions clearlywould be coercive to the individ-ual integrity of (our organiza-tion).

7. Perjury or any illegal act ostensi-bly taken to “protect” the compa-ny is wrong. A sale madebecause of deception is wrong. Aproduction quota achievedthrough questionable means orfigures is wrong.

8. We pledge ourselves to maintaincomplete loyalty to the coopera-tive that elects us or employs usand aggressively pursue itsobjectives; hold inviolate the con-fidential relationship between theindividual members of the coop-erative and ourselves and theconfidential information entrust-ed to use thorough the coopera-tive office; serve all members ofour cooperative impartially, andprovide no special privilege toany individual members, noraccept special personal compen-sation from an individual mem-bers, except with the knowledgeand consent of all other mem-bers; neither engage in, nor coun-tenance, any exploitation of ourcooperative or profession; recog-nize and discharge our responsi-bility and that of our cooperativeto uphold all laws and regula-tions relating to our cooperativeactivities; exercise and insist onsound business principles in theconduct of the affairs of ourcooperative; use only legal andethical means if we should seekto influence legislation or regula-tion; issue no false or misleadingstatements to the members orpublic; refrain from the dissemi-nation of any malicious informa-tion concerning other coopera-tives or competitors; accept ourresponsibilitv for cooperating in

every reasonable and proper waywith other cooperatives; useevery opportunity to improvepublic understanding of coopera-tive principles; and maintainhigh standards of personal con-duct.

Source: Iowa Institute1992; Von der EmbseIndustries, 1983.

of cooJ984;

Iperatives,AGRI

33

References

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34

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35

Related Reading

Almeder, Robert, “Gifts and pay-offs: morality and gift giving.”Pp. 131-134 in Peter Madsenand Jay Schafritz (eds.),Essentials of Business Ethics.New York: Meridian, 1990.

America, Richard F., “Affirmativeaction and redistributiveethics.” Journal of BusinessEthics 5: 73-77,1986.

Anderson, Bruce L., “Democraticcontrol and cooperative deci-sion making: a conceptualframework.” Journal ofAgricultural Cooperation 2: l-15, 1988.

Arvey, Richard D. and G. L. Renz,“Fairness in the selection ofemployees.” Journal ofBusiness Ethics 11: 331-340,1992.

Asch, Peter, IndustrialOrganization and AntitrustPolicy. New York: Wiley, 1983.

Associated Business Press,Business Ethics. London:Associated Business Press,1980.

Bahm, Archie J., “The foundationsof business ethics.” Journal ofBusiness Ethics 2:107-110,1983.

Barnett, John H. and Marvin J.Karson, “Manager, values andexecutive decisions: an explo-ration of the role of gender,career stage, organizationallevel, function, and the impor-tance of ethics, relationshipsand results in managerial deci-sion making.” Journal ofBusiness Ethics 8: 747-771,1989.

Baron, Marcia, The Moral Status ofLoyalty. Chicago:Kendall/Hunt Publishing Co.,1984.

Beauchamp, Tom L., and NormanE. Bowie, Eds., Ethical Theoryand Business. EnglewoodCliffs, NJ: Prentice-Hall, 1984.

Beltramini, Richard F., Robert A.Peterson, and GeorgeKozmetsky, “Concerns of col-lege students regarding busi-ness ethics.” Journal ofBusiness Ethics 3: 195-200,1984.

Berde, Sydney, “Congress, coopera.tives, and the anti-trust laws.”American Cooperation, pp.380-392, 1977-78.

Berde, Sydney, “An evaluation ofthe ‘National Commissions’anti-trust recommendations.”In American Cooperation, pp.371-380,1978-79.

Bhasin, Roberta, “It’s on the house.” Pulp and Paper 58: 145,

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Exercise 1 Understanding the Difference Between Morals and Ethics

Personal Life Behavior

Proper

Moral but Unethical I

ImproperIII

Immoral andUnethical

I

\

Moral and Ethical

Immoral but Ethical

Improper

Based upon this model, give an example for each type of behavior you have witnessed inyour community.

I . Moral, but Unethical

II . Moral and Ethical

III. Immoral and Unethical

IV. Immoral, but Ethical

41

Exercise 2 How Have Ethics Changed in the Past 10 Years?

. 1. Among farmers?

2. Among people in your community?

3. Among all Americans?

4. Among youth and young adults?

5. What has caused these changes?

Why might a manager behave unethically? (e.g., pressure to generate earnings)

Why might an employee behave unethically? (e.g., poor training)

Why might a member behave unethically? (e.g., economic pressure)

I am a (check one): Board of Director

Co-op Manager

Co-op Employee

Co-op Member

42

Exercise 3 Ethics in Cooperatives

Many cooperative members are concerned with what they see as declining ethical stan-dards and behaviors within the cooperative system. Give examples of the types of uneth-ical behavior you are aware of (have witnessed or heard rumored) occurring within coop-eratives or among its members today. (You need not identify responsible individuals;simply describe types of unethical behaviors.)

Director Perpetrated (e.g., asking for special treatment)

Manager Perpetrated (e.g., hiring family or friends)

Employee Perpetrated (e.g., borrowing co-op equipment)

Member Perpetrated (e.g., plugging grain)

I am a (check one): Board of Director

M a n a g e rCo-op

Co-op Employee

C o - o p M e m b e r

4!3

Exercise 4 What Causes Unethical Behavior?

What causes cooperative members to behave unethically? Confusion? Outside pressure?Lack of personal morals? Give examples of reasons you think co-op members behaveunethically.

Why might a director behave unethically? (e.g., fear of being seen as ignorant)

Why might a manager behave unethically? (e.g., pressure to generate earnings)

Why might an employee behave unethically? (e.g., poor training)

Why might a member behave unethically? (e.g., economic pressure)

I am a (check one): B o a r d o f D i r e c t o r

Co-op Manager

C o - o p E m p l o y e e

M e m b e rCo-op

44

Exercise 5 Excuses, Excuses, Excuses

There are many reasons (or excuses) why people behave unethically. Here are a few com-mon ones.

l It was necessary (the ends justify the means).

0 It was legal.

l I did it for your benefit.

l I was only fighting “fire with fire.”

l It didn’t hurt anyone.

l Everyone else is doing it.

l I did not gain personally.

l I deserved it.

What are some of the common excuses that you hear from those trying to explain theirunethical behavior?

45

Exercise 6 Is Your Cooperative at Risk?

This describes my cooperative

1 .

2 .

3 .

4 .

5 .

6 .

7 .

8 .

9 .

If a cooperative normally emphasizesshort-term revenues above long-termconsiderations, it is creating a climatefor unethical behavior.

A cooperative that routinely ignoresor violates internal -or professionalcodes of ethics is at risk.

A cooperative that always looks for simplesolutions to ethical problems and is satisfiedwith “quick fixes” is at ethical risk. .

If a cooperative is unwilling to take an ethicalstand when there is a financial cost to thedecision, it encourages ethical shortcuts.

A cooperative that creates an internalenvironment that either discouragesethical behavior or encourages unethicalbehavior is at risk.

When a cooperative usually sends ethicalproblems to the legal department, it is at risk.

Any cooperative that looks at ethics solely asa public relations tool to enhance its image isat ethical risk.

Any cooperative that treats its employeesdifferently than its customers encouragesunethical behavior.

Any cooperative that is unfair or arbitraryin its performance appraisal standards isat risk.

10. Any cooperative that has no proceduresor policies for handling ethical problemsis at risk.

11 Any cooperative that providesno mechanism for internal whistleblowingis at risk.

Never Sometimes Always

46

Exercise 6continued

Is Your Cooperative at Risk?

This describes my cooperative

12 .

13 .

14 .

Any cooperative that lacks clear linesof communication with the organizationencourages unethical behavior.

Any cooperative that is only sensitiveto the needs and demands of theshareholders is at ethical risk.

Any cooperative that encouragespeople to leave their personal ethicalvalues at the office door is at risk.

Total

Never Sometimes Always

1

2 3

2 3

Source: Modified from Cooke’s (1991) 14 Danger Signs

47

Exercise 7 Ethics Checklist

When contemplating actions, consider this “Ethics Checklist. ”

1 .

2 .

3 .

4.

5 .

6 .

7.

8 .

Does the contemplated action violate law?

Is the contemplated action contrary to widelyaccepted moral obligations such as duties offidelity, gratitude, justice, nonmaleficence, orbeneficence?

Does the proposed action violate any otherspecial obligations which stem from tenetsof cooperative organization?

No

1

1

Yes

2

Is the intent of the contemplated actionharmful?

Are there any major damages to people ororganizations that are likely to result fromthe contemplated action? 1

Is there a satisfactory alternative actionwhich produces equal or greater benefitsto the parties affected than the proposed action? 1

Does the contemplated action infringe uponthe inalienable rights of the consumer (rightto information, to be heard, to choose, and toredress)? 1 2

.IDoes the proposed action leave another personor group less well off? Is this person or groupalready a member of a relatively underprivileged class? 1 2

Source: Laczniak and Murphy, 1991

48

Exercise 8 Six Organizational Actions To Improve Ethics

Consider what cooP

erative members and emploYshould each of the allowing do or be responsib

ees can do to improve ethics. Whate for in your cooperative?

1. The organization must make ethics an integral part of management decisions.

l (ethics management)

2. The organization must distinguish the ethical and moral dimensions of day-to-day

activities within the organization and decide which dimensions (and activities) take

precedence.

l (issue identification)

3. Organizational values should be consistent with the larger culture.

0 values clarification

4. It should be understood that in complex decisionmaking, there is usually more than

one ethical choice.

l (decisionmaking)

5. Organizational and cultural supports must be identified. Ethical judgments should

not be ad hoc; they must be rooted in substantive principles and applied consistently.

0 (organizational support)

6. Decisions imply and require commitment by all stakeholders in the organization.

0 (commitment)

What Is the Role of Each player in Improving Co-op Ethics?

Board Member

Manager

Employee

Member

Source: Von der Embse, 1984

49

Exercise 9 Toward Developing a Code of Ethics

What critical issues should be addressed in a code of ethics for your cooperative?

What key principles would you like to see strengthened in your cooperative?

Compare your responses with the ethics checklist and the samples provided.

50

Exercise 10 A Case Study of Ethics

Please read the attached article from the July 13,1995 Wall Street Journal and answer thefollowing questions. In this exercise, we are neither attempting to determine the guilt orinnocence of either party nor establishing the truth or falsity of any of the claims, butrather providing a good case study to discuss ethics.

1. a. What do you perceive as the ethical issues in the article? What are the ethicalissues surrounding the allegations concerning ADM?

b. What about the ethical issues surrounding Mr. Whitacre’s behavior?

c. What ethical issues are raised in the community response?

2 . What accounts for the differing ethical positions presented in this article?

3 . What alternative actions might have been followed to avoid this situation?

4 . How do you feel about the statement, “He is not an upright citizen or he wouldn’tbe ratting on his boss. If you’re being paid by an employer, you owe allegianceuntil you don’t want to work there anymore. Then you leave.”

51

Reprinted by Permission ofi The Wull Street Journal 0 Dow Jones & Company All Rights Reserved Worldwide July 13, 1995

You Dirty Rat, Says Decatur, Ill., of Mole at Archer-DanielsPeople Think Mark Whitacre Betrayed Them and Ask Why He Turned to FBI

by Carol Quintanilla and Anna D. WildeStaff Reporters of The Wall Street Journal

DECATUR, Ill. - How could Mark E.Whitacre do such a thing?

Since Monday morning, that has beenthe question raised again and again in thetaverns, churches and living rooms of thisMidwestern town of 84,000.

Mr. Whitacre is the 38-year-oldArcher-Daniels-Midland Co. executive andmodel citizen who, this newspaper dis-closed Monday, has been a secret FBIinformant for the past three years. Thepresident of Archer-Daniels’ BioProductsdivision secretly taped conversations of hiscolleagues as part of a criminal investiga-tion of the grain-processing giant and oth-ers. No charges have been filed.

The news has jolted this Bible Beltcommunity, where the company employsone of every 35 residents. At radio stationWSOY-AM, the Archer-Daniels situationis all that callers want to talk about. “I’msurprised and shocked,” says one womancaller from Decatur, “because I take a lotof pride in ADM.” Indeed, the mood hereappears to have turned decidedly againstMr. Whitacre, a Rotary Club speaker andnew Millikin University trustee, known foradopting troubled kids.

And there isn’t much forgiveness,even at church. “The biggest feeling hereright now is a sense of being violated,” saythe Rev. Randy DeJaynes, pastor of ChristLutheran Church. “It’s as though I becamea good friend of your family, came over toyour house all the time, then started riflingthrough your drawers. It’s not an intruderthough. It’s someone who’s trusted - by acompany and by an entire community.”

On the TableMr. Whitacre was the big topic at

Christ Lutheran’s monthly council meetingTuesday night, overshadowing such issuesas the church’s plans to buy an air-condi-tioning system and hold a garage sale.“Why didn’t he just quit?” asks councilmember Bob Dobrinick. “That’s what Iwould have done. I’m not about to be aspy .”

Says another of the seven board mem-

52

bers: The idea that the feds spy on thecommunity “frightens me. They’re aboutas underhanded as anybody.”

At Nick’s Auto Body, co-owner NickVanderlaan says Mr. Whitacre “is not anupright citizen or he wouldn’t be ratting onhis boss. If you’re being paid by anemployer, you owe allegiance until youdon’t want to work there anymore. Then,you leave.”

And in this town, where Archer-Daniels is king, many citizens would ratherjudge Mr. Whitacre a rat than contemplatethat the company might be a price-fixer.“ADM has a reservoir of goodwill andrespect,” says Ron Diamond, a retiredCaterpillar, Inc. executive. “I think peoplewant to give them the benefit of thedoubt.”

One reason is that Archer-Daniels’largess reaches far and wide. The companyhas sponsored everything from the DecaturMunicipal Band, which plays Mondaynights in Central Park, to the nationalchampion Decatur Pride Fast-Pitch SoftballTeam.

A smudge on Archer-Daniels’ reputa-tion could hardly come at a worse time inthis community, where Abraham Lincolnpracticed law and R.R. Montgomeryinvented the fly swatter. Workers atDecatur’s other major employers - Tate 8r.Lyle PLC’s A.E. Staley Manufacturing Co.subsidiary and Caterpillar - have beenlocked out or on strike for as long as twoyears.

All that is left, says Merrill Lynchbroker Ray Schmitt, is Archer-Daniels.“They’re kind of our baby,” he says.“They’re like the angel around here.”

That explains why the sharp drop inthe company’s stock - share prices haveslid 15% since Friday - has become a localtragedy in more than one way. Many resi-dents are shareholders and have beenflocking to brokerage houses seekingadvice about their investment nest eggs.“I’ve done a lot of hand-holding - literal-ly,” Mr. Schmitt says.

Neighboring DefenseJack Wyse, who owns 1,050 shares,

says he decided to hang on to them. But theowner of Jimmy Ryan’s Conference Room,a local bar-and-grill, is angry at Mr.Whitacre. “He betrayed ADM,” he says.“How in the world could a man do what hedid to that company?”

The mayor of Moweaqua, Ill., GeorgeForston, may have an answer. He says thatMr. Whitacre, who lives in the town locat-ed 17 miles from Decatur, “isn’t a personwho feels he or anyone else should beabove the law. If there’s anything the towncan provide, we’ll do it.”

Still, even Mr. Whitacre’s closefriends admit they can’t fathom why he didwhat he did. “I’m dumbfounded,” saysCurtis McCray, president of MillikinUniversity. He says he has talked to Mr.Whitacre’s wife, Ginger, but hasn’t spokenwith his university trustee for an explana-tion. He is certain, though, that Mr.Whitacre had a good reason.

Indeed, in tiny Moweaqua (pop.1,922), Mr. Whitacre is still considered anice guy. Residents describe Mr. Whitacreas a friendly man who waves at passersbyfrom the lawn of his palatial estate-onceowned by Archer-Daniels ChairmanDwayne 0. Andreas.

Leading CitizensThe Whitacres have earned their role

as leading citizens, residents say. Mr.Whitacre and his wife have given generousdonations to town fund drives for localcancer patients. They often can be spottedeating breakfast at Ye Olde Towne DiningRoom on Main Street. And Mrs. Whitacreshops at the local supermarket.

Some now worry about Mr.Whitacre’s career. “He’s probably done theright thing,” says Terry Flatt, a vice presi-dent of Ayars State Bank, “but I think it’llhurt him in the future.”

Adds 70-year-old Ed Paine, a retiree: “Idon’t know if I would have had the guts. Mr.Whitacre’s not furthering his career much,but he’s certainly a man of his convictions.”