Creating an Ethical Organization Climate

Group 5:

Beverly Peete, Bobby Lane, Ryan Barker, Dennis Daniels, Crystal Thomas, and

La’Shawn Harbin

Introduction“Corruption is a durable and adaptable virus”-

Professor Yadong Luo

This presentation will cover different aspects on how to create an ethical organization climate. The topics are listed below:

• Leaders as Ethics Officer

• Ethical Climates

• Signs of Healthy Ethical Climates

• Climate Building Tools

• Case Study 1

• Case Study 2

The Leader as Ethics Officer

• Leaders act by exercising influence through the process of social learning and building positive ethical climates

• Leaders of their organization may cast light or shadow in large parts by the example they set

• Moral leaders make sure that ethics messages are not drowned out by other messages about tasks and profits

• Ethical leaders make ethical considerations a top organizational priority

• They create positive ethical climates that promote moral behavior leaders and followers alike

Ethical Climates

Ethical climate is best understood as part of an organizations culture. There are five primary types.

• Instrumental- principles of ethical egotism

• Caring- concern or care for others

• Law and Order- external criteria professional codes of conduct

• Rules- governed by policies, rules, procedures

• Independence- members can make their own decisions

Signs of Healthy Ethical Climates

Key Markers:

• Humility

• Zero Tolerance for Destructive Behaviors

• Justice

• Integrity

• Trust

Beverly PeetePSC 785 – Group 5

Humility

High performance businesses are always in danger of accepting unethical behavior as the normal way of operating.

1. Culture of Competition

2. High-performance Organizations

3. Exaggerated focus on mission

4. Stories that justify poor behavior

5. Culture becomes isolated

Humility ContinuedCollective Virtue

1. Aware of strengths and limitations

2. Open to new ideas and knowledge

3. Acknowledge the importance of serving a higher power

4. Prevent hubris and the disdainful treatment of outsiders

5. Sensitive to the signs of ethical trouble

Zero Tolerance for Individual and Collective Destructive Behaviors

• Incivility: disregard others and violate norms for respect

• Aggression: consciously trying to hurt others or the organization

• Sexual Harassment: aggression directed largely at women –Quid Pro Quo

• Discrimination: putting members of selected groups at a disadvantage

Common Categories

Zero Tolerance for Individual and Collective Destructive Behaviors – Cont’d

• Create zero-tolerance policies that prohibit antisocial actions

• Obey guidelines

• Constantly monitor for possible violations

• Move quickly when standards are violated

• Address the underlying factors that trigger destructive actions

How to Reduce Destructive Behaviors

Justice

Distributive – Procedural – Interactional

• Deal truthfully with organizational members

• Offer clear explanations

• Distribute pay and other benefits according to a well-structured system

• Involve followers in decision-making processes

Integrity

Ethical soundness, wholeness, and consistency

• Sensible, clearly communicated values and commitments

• Commit to and act on the values

• Values are part of the routine decision-making process

• Systems and structures support and reinforce organizational commitments

• Knowledge and skills needed to make ethical decisions.

Trust

Good-faith – Honest – Fair

Trust binds group members together, fostering collaboration and

communication; lowering costs; reducing turnover; encouraging

organizational learning, innovation, and work effort; and generating

employee satisfaction and commitment.

Structural Reinforcement

An organization’s structure shouldn’t weaken the ethical standards of its associates. It should encourage a higher moral performance of both leaders and followers

The 3 features of an organization’s structure that have the strongest impact on moral behavior1. Monetary and nonmonetary reward systems. 2. Performance and evaluation processes.3. Decision-making rights and responsibilities.

Monetary and nonmonetary reward systems. Example of this would be giving employees incentives. For instance

when a person takes there car to get an oil change and let’s say the deal is

$20 oil changes. The managers tell the employees if they can sale more

products to the customer they will get a bonus. In turn the mechanic will

change the oil and then tell the customer they need additional services while

making them feel stressed and threaten. This will increase sales because the

customer is in fear of their car breaking down. This is unethical because they

customer may not necessarily need those services and they are not as severe

as they have been lead to think.

Performance and evaluation processesPerformance and evaluation processes should reflect the balance

between means and ends. However these can also be somewhat subjectivebecause it leave employee reviews open to potential unethical evaluations.Managers could intentionally or unintentionally evaluate staff using differentcriteria, which can raise or devalue individual scores in an unethical manner.Managers may also fail to take their personal feelings into account when issuingperformance judgment, which can bias their assessment, take the focus awayfrom the professional elements of an evaluation, and skew the results.

Decision-making rights and responsibilities.Ethical conduct is more likely when workers are responsible for

ethical decisions and have the authority to choose how to respond(Johnson). Ethical dilemmas are characterized by the ‘what if’ questionand are often situations where there seems to be no clear solution to theproblem. Moral or ethical leadership involves the commitment to doingwhat is right according to societal and cultural beliefs and values aboutacceptable behavior. Ethical leaders distinguish themselves by makingdecisions in the service of long-term benefits that may be inconvenient,unpopular, and even unprofitable in the short-term. Moral leaders have aclear understanding of their own values and hold themselves accountablefor them. Leaders who are ethical demonstrate a level of integrity thatemphasizes their trustworthiness, and this trust enables followers toaccept the leader's vision

Social Responsibility Concern for those outside the organization is another sign of a healthy ethical climate (Johnson).

Corporate social responsibility (CSR) can be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time" (Carroll and Buchholtz 2003, p. 36). The concept of corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law.A traditional view of the corporation suggests that its primary, if not sole,

responsibility is to its owners, or stockholders. However, CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders, but many other constituencies as well, including employees, suppliers, customers, the local community, local, state, and federal governments, environmental groups, and other special interest groups. Collectively, the various groups affected by the actions of an organization are in some form stakeholders.

Discovering Core ValuesThe core identity of the organization

• Core values do not change over time and define an organization• Define core values by finding what would not change regardless the outcome

• Core values are different for every organization

• Core values should be the bare essentials of the originations culture

• Core Purpose reflects the mission statement of the organization• Purpose is the organization’s reason for being that reflects its ideals

• The purpose statement should inspire the organization’s members

• The core values and core purpose is a company’s anchor• Other aspects may change while the values and purpose stay the same

• The values and purpose define the company culture

Code of Ethics

Key Points• Controversial Points of a Code of Ethics

• Benefits of a Code of Ethics

• Code of Ethics Guidelines

• What a Strong Code of Ethics Addresses

Code of EthicsControversial Points of a Code of Ethics

• Codes are to vague to be useful• Codes are not widely distributed or read• Codes are devolved as public relations documents designed solely to

improve an organization’s image• Codes don’t improve the ethical climate of organizations or produce

ethical behavior• Codes become the final word on the subject of ethics• Codes are hard to apply across cultures and in different situations• Codes lack adequate enforcement provisions• Codes fail to spell opt which ethical obligations should take priority• Adherence to codes often goes unrewarded

Code of EthicsBenefits of a Code of Ethics

• An organization's ethical stance to its members and the world is outlined

• People can look to the code for guidance about the organization’s ethical standards and values

• Employees can learn potential ethical problems they may face

• It can improve and protect the group’s image

• It can encourage employees to resist unethical pressures

• A written document can have a direct, positive influence on ethical behavior to members of the organization

Code of EthicsCode of Ethics Guidelines

• Identify what are ethical goal and ethical standards • Design the code for ordinary circumstances• Use clear language. Explain uncommon terms• Be logically coherent and prioritize obligations

• What commitments are most important

• Protect the larger community• Focus on issues of importance to group members

• Address the organization's unique ethical dilemmas

• Provide guidance to the whole organization• Explain consequences when the organization as a whole is unethical

• Outline the moral principals behind the code• Explain why an action is right biased on ethical standards

• Encourage widespread input• Back the code with reinforcement

• Create procedures for interoperating the code and applying sanctions

Code of EthicsWhat a Strong Code of Ethics Addresses

• Conflict of interest • When the employee benefits at the expense of the organization

• Records, funds and assets • Organizations must keep accurate records to protect funds and other assets

• Information • Liability if confidential information is revealed

• Outside relationships • Contact with customers, suppliers, competitors, contractors, and other outside

organizations. Also includes provisions against bad-mouthing competition, price-fixing, and sharing sensitive information

• Employment practices • Covers discrimination, sexual harassment, drug use, voluntary activities, and

related human resource issues

• Other practices• Includes policies on health and safety, use of technology, environment, political

activities, and the use of organizational assets for personal benefit

Continuous Ethical ImprovementEthics Training

• Focus on the origination's unique ethical problem• Introduce examples from the specific industry and profession

• Equip trainees with the resources needed to address those issues

• Taps into the experiences of participants• Encourage trainees to reflect on their own values and moral moments

• Ask for input when selecting issues to discuss

• Make the trainees become the teachers

• Actively engages participants• Encourage in-depth conversation and debate on ethical topics and issues

• Get all participants involved in group discussion

• Reinforces the organization’s ideology and standards• Reinforce all components of ethical climate

• Highlight the origination's group purpose and core values

• Ethics are integrated into the entire training program• Ethics are not a standalone topic

• Integrate proper ethical behavior into all training sessions to help act with integrity

An organization that has an excellent

ethical climate - Wal-Mart Stores, Inc.

Dennis C. Daniels

PSC 785

April 26, 2015

Agenda

• Wal-Mart Headquarters

• Mission Statement

• Purpose

• How did Wal-Mart achieve an excellent ethical climate

• Service to our Customers

• Strive for Excellence

• Act with Integrity

• Sam Walton, Founder

Wal-Mart Headquarters

• The corporate headquarters of the world's largest retail company, Wal-Mart, are located in Bentonville, AR, where founder Sam Walton started it all.

Mission Statement

• We save people money so they can live better.

Purpose

• If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.

How did Wal-Mart achieve an excellent ethical climate

• Beliefs: Since Sam Walton founded the company, it always has been a values-based, ethically led organization. The organization beliefs are the values that guide decisions and leadership.

Service to our Customers

• At Wal-Mart we value every associate, own the work we do, and communicate by listening and sharing ideas.

Strive for Excellence

• We work as a team and model positive examples while we innovate and improve every day.

Act with Integrity

• We act with the highest level of integrity by being honest, fair and objective, while operating in compliance with all laws and our policies. We act with the highest level of integrity by being honest, fair and objective, while operating in compliance with all laws and our policies.

Sam Walton: Founder

• Personal and moral integrity is one of our basic fundamentals and it has to start with each of us. 

• Don’t compromise your reputation. It’s a precious commodity. Don’t compromise your integrity… have a good name.

tyco and the Dennis Kozlowski Story

Bobby LanePSC 785

About Tyco

• Founded in 1960

• Investment and holding company specializing in solid-state science and energy conversion, and would later enter the commercial sector.

• Increased sales from $34 million to $500 million between 1973 and 1982.

• By 2000, Tyco had acquired more than 30 major companies and was a major global company.

The Crisis

By 2002:

• More than $170 million of company money had been spent on non-business related expenses.

• More than $430 million was stolen through fraudulent sales of Tyco stock.

Dennis Kozlowski

About• Began career at Tyco as an accountant

(30K Salary)

• Found mentor in Joseph Gaziano (CEO) who Dennis admired for his success and lavish lifestyle.

• Worked his way up the ranks and took over as CEO in 1992.

• Became known as the ‘corporate tough guy, respected and feared in roughly equal measure’.

Life as CEO• Followed in the footsteps of mentor

with his aggressive management style and uncontrolled spending.

• Acquired many other companies.• Increased annual returns year after

year.

In the beginning…

Aligning the Scam• Acquired ADT Security Services, a

company based in Bermuda.– Sheltered foreign earnings from US

taxes.• Handpicked board of directors that

were ‘trusted’.– #1 responsibility: Keep unethical or

inappropriate practices hidden from shareholders.

Abusing Power• Terminated anyone who voiced

shortcomings of the company. • Forced acquired companies to eliminate

segments not profiting.• Gave millions of dollars in commission

to ‘trusted’ individuals.

Want vs Need: The Power of Greed

Dennis used Tyco’s money and loan programs (interest-free) for some questionable expenses:• Privately purchased luxury office space as unofficial headquarters

– $31 Million • Dennis’ Salary

– $170 Million • Fine Art

– $20 Million• Dennis’ Wife’s Birthday Party

– $2 Million• Dennis’ Home

– $30 Million• Philanthropy Contributions (In Dennis’ name)

– $43 Million

In the end…

• Board members found out others had been issued 10s of millions of dollars in bonuses and began a corporate investigation that uncovered the scandal.

• Kozlowski was indicted and found guilty of twenty-two charges. He is currently serving his 25 year maximum sentence for the crimes.

Tyco’s Ethical Climate

• This is an example of how too much power in one individual can lead to the destruction of an entire organization.

Signs of Ethical Collapse• Maintain Numbers: Hiring of trusted employees to manipulate finances.

• Fear and silence: The board members were bribed with additional compensation and bonuses leading them to conduct unethical practices.

• Weak Board: Corresponds to fear and silence. Dennis’ “tough guy” reputation also plays into this aspect.

• Conflicts: In a company of 200 thousand employees, less than 10 knew specifics about the CEOs actions and business practice.

• Innovation: Being very successful– sometimes doubling yearly revenues– Dennis felt he should be rewarded for his efforts.

References

Bianco, A. (2002). The Rise and Fall of Dennis Kozlowski. Retrieved from http://www.ajbianco.com/the_rise_and_fall_of_dennis_kozlowski.php

Carroll, A.B., and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management. 5th ed. Australia: Thomson South-Western, 2003.

Daniels Fund Ethics Initiative. (2011). Tyco International: Leadership Crisis. Retrieved from http://danielsethics.mgt.unm.edu/pdf /Ty co%20Case.pdf