MBA Management PerspectivesUnit 2: Ethics, Governance and CSR

Session 4

Dr. Andrea Wernera.werner@mdx.ac.uk

Session overview

Last three sessions:Stakeholder approach, CSR and related conceptsCorporate GovernanceEthical Theory

Today: Managing individual and corporate values - Business Ethics Management

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Business Ethics Management

“Business ethics management is the direct attempt [of companies] to formally or informally manage ethical issues or problems through specific policies, practices and programmes.” (Crane and Matten 2010:185)

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Why business ethics management?Corporate scandalsConcern about reputationPart of risk managementCompliance with regulation (especially US)Part of good corporate governance

“It is important that all employees should know what standards of conduct are expected of them. We regard it as good practice for boards of directors to draw up codes of ethics or statements of business practice and to publish them both internally and externally.” (Cadbury Report, 1992)

(mimetic behaviour)

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Components of business ethics managementValue and mission statementCode of ethicsReporting/Advice channelsEthics awareness raising and trainingEthics managers / officers /board committees

Risk management systemsStakeholder consultation, dialogue and partnership

programmesAuditing, accounting, reporting

Ethical culture

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Examples of corporate mission and value statements“The mission of Merck is to provide society with superior products and

services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of return.

Our values: Our business is preserving and improving human life.  We are committed to the highest standards of ethics and integrity.  We are dedicated to the highest level of scientific excellence and

commit our research to improving human and animal health and the quality of life.

We expect profits, but only from work that satisfies customer needs and benefits humanity. We recognize that the ability to excel -- to most competitively meet society's and customers' needs -- depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees, and we value these qualities most highly.” 

Examples of corporate mission and value statementsBP “We help the world meet its growing need

for heat, light and mobility. We strive to do that by producing energy that is affordable, secure and doesn’t damage the environment.BP is progressive, responsible, innovative and performance driven.”

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Types of ethics codes“Codes of ethics are voluntary statements that commit organisations,

industries, or professions to specific beliefs, values and actions and/or that set out appropriate ethical behaviour for employees” (Crane and Matten 2010:191)

Organisational or corporate codes of ethics Professional codes of ethics

Institute of Chartered Accountants Code of Ethics National Association of Estate Agents Code of Practice

Industry codes of ethics Responsible Care (chemical industry)

Programme or group codes of ethics / standards UN Global Compact

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html PACI Principles for Countering Bribery (World Economic Forum) SA 8000 (labour standard) ISO 26000 (social responsibility)

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Code of conduct vs code of ethics – two ‘extreme’ views (Fisher & Lovell 2009:392)

Code of conductFocus on compliance with law and with company’s

own rules and policies Goal: prevent criminal conduct and protect company

from self-interested actionrules to prescribe and proscribe certain behaviourExample issues: conflicts of interest, insider dealing,

personal use of assets

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Code of conduct vs code of ethics – two ‘extreme’ views (Fisher & Lovell 2009:392)

Code of ethicsfocus on commitments of companylinks to values and visions of the companyseeks to build relations of trust with all stakeholder

groupsencourages employees to display behaviour based on

virtues such as integrity and honestysets out general principlesExample issues: equal opportunities for employees,

value for money products and services, respecting human rights, respecting the community, the environment

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Look at the examples you brought:

Do you think this is a code of conduct (regulating employee behaviour) or a code of ethics (setting out organisational commitments to stakeholders) or both? Why?

Do you think the code addresses sufficiently the ethical/CSR issues that the company is facing? Why? Why not?

What do you like about this code, what do you dislike about this code?

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What makes a code / ethics programme work?

Clearly based on values (linked to values and mission statement) Balance between principles and prescriptions Stakeholder orientation Employees (and other groups) are involved in drawing up the code ‘User friendly’ style of code (e.g. provision of examples, reasonable

length) Support structures (implementation and communication, training,

speak up mechanisms etc) Support from top-level management Follow-through (e.g. consistent policies and actions, violations are

taken seriously) Embedded in an ethical culture Reference to ‘higher level’ codes (industry, global codes etc.)

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Corporate Scandals and whistleblowing

Worldcom, Enron and accounting fraudWhistleblowers: Cynthia Cooper, Sherron Watkins

Maxwell pension scandalWhistleblower: Harry Templeton

HBOS and the banking crisisWhistleblower: Paul MooreBP Oil Spill

Whistleblower: Adam Dillon

What is a whistleblower?

An employee (or ex-employee) of an organisation

Is in possession of privileged information about what s/he perceives to be illegal and/or unethical conduct in the organisation

Decides to (voluntarily) bring this information to the attention of those who might be able to rectify this malpractice Internal/external whistleblowing

A recent whistleblowing case

Paul Moore and HBOShttp://www.youtube.com/watch?v=_GsyJ9V136E&feature=relatedhttp://edition.cnn.com/video/#/video/business/2009/02/18/finighan.uk.whistleblower.cnn?

iref=videosearch

Why did he decide to speak up?

To what extent would his personality have played a role?

What consequences did he have to suffer for his actions?

What do you make of his motives?

Why did not more people raise concerns as he did?

What would have happened if senior management had responded to his concerns?

What is at stake in whistleblowing cases? the need for employees to feel able to exercise moral

agency (i.e. follow their conscience and/or their professional ethos)

public interest in information that affects societal welfare (avoidance of harm)

VS the contractual requirement of employees to display

loyalty to the organisation and respect confidentiality of information (potential damage to organisation)

Likely negative consequences of whistleblowing (career-related, financial, emotional, health-related)

protection from malicious and ill-founded accusations from disgruntled employees

How should companies respond?

Formal ‘whistleblowing’ policiesWhat do your corporate codes of ethics examples say

about internal whistleblowing (e.g. raising concerns, reporting violations, speaking up)

Organisational culture

Good practice for a formal internal whistleblowing policyCommitment to internal whistleblowing policy (part of

corporate responsibility policy)Gives employees the option to raise a whistleblowing concern

outside of line management (internal/external contacts)Offers employees a right to confidentiality when raising their

concernA guarantee against retaliation and victimisation of the

bona fide whistleblower and a provision of disciplinary action against those who maliciously make a false allegation

Organisation provides well-trained personnel to investigate reports

Provides feedback to employees about outcome of investigation

But ... “Employees are encouraged to report actual or potential infringements

of the BG Group Principles. ... BG Group employees who have concerns or queries are encouraged to speak to their manager. If this is not possible, employees can call the independent service TalkDirect for guidance and advice in confidence.” (BG Group)

“As a duty of your employment, you are required to raise concerns about possible violations of the law, a regulation or the Code... Report your concerns to your manager or, if necessary, a senior manager, or any member of the compliance, legal, responsible business or human resources functions at IMI Group or local level... When you encounter a particular sensitive situation and you are not comfortable using the regular reporting channels, you can report a concern via the IMI Hotline.” (IMI Group)

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Potential Downsides of Corporate Whistleblowing Policiespossible consequences if reporting illegal and unethical

conduct is made compulsory in organisations (Tsahuridu and Vandekerckhove 2008) can turn moral responsibility of employees into liability, holding

them responsible for failing to blow the whistle instead of encouraging moral autonomy may increase control of

people by organisations shifts responsibility for ethical behaviour from organisation to

individual members

cultural differences (Hassink et al. 2007) CNIL in France and anonymous whistleblowing hotline

How can employees raise concerns (more) effectively?

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Enablers for ‘Voicing Values’ (Gentile 2010)- Tips for Employees Enlist allies Select and sequence your audience Gain greater confidence in your viewpoint as a result of securing

more information Work through incremental steps Change the frame of the problem: position it as opportunity seeking

rather than risk management, for example, or as a ‘learning dialogue’ rather than a reproach

Find win-win solutions Appeal to shared purpose, values (appeal to alignment) Normalise (managing this kind of conflict is just part of doing the

job) Play to your strengths (how can you best influence?)

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Organisational culture and ethicsPaul Moore:

“The sales culture had got markedly out of balance with the ability to control this sales culture.”

“I witnessed and resisted a reckless lending culture that ultimately led to the bank’s collapse.”

“It was a kind of culture that celebrated bullying.”

Ethical organisational culture – beyond a code of ethics and ‘speak up’ mechanisms

Organisational ‘lived’ ethos Schein’s levels of culture:

artefacts, espoused values, basic assumptions (1992, cited in Fisher & Lovell 2009:411)

Role of senior managers commitment, communication, example

Encouragement of dialogue and debateencourage employees to voice concernsno stifling of dissenting voices

Fostering of autonomy and ‘moral imagination’ (see Gentile’s [2010] Giving Voice to Values approach)

Ethical organisational culture – beyond a code of ethics and ‘speak up’ mechanisms

Appropriate reward and incentive systems (Trevino et al 1999) reward for ethical behaviour punishment for unethical behaviour performance targets and ethical behaviour incentives vs motivations

Commitment to organisational learninge.g. after incidents

Readings

Crane & Matten (2010). Business Ethics. Chapter 5Griseri & Seppala (2010). Business and Corporate

Social Responsibility. Chapter 11Fisher, C., Lovell, A. (2009) Business Ethics and Values.

Harlow: Pearson Education, Prentice Hall. Chapters 7 and 10.

Boatright, J. (2009) Ethics and the Conduct of Business. Upper Saddle River: Pearson Education, Prentice Hall. 4th edition. Chapter 4

Schwartz, M. (2004) ‘Effective corporate codes of ethics: perception of code users’, Journal of Business Ethics 55(4), 323–343.

Trevino, L., Weaver, G., Gibson, D. and Toffler, B. (1999) ‘Managing ethics and legal compliance: what works and what hurts’, California Management Review 41(2), 131–151.

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Coursework

Choose companyChoose issueSuggested structure:

Company backgroundExplanation of issueApplication of CSR/business ethics theories to explain

why company should care about the issueAnalysis of existing business ethics management

tools/policiesRecommendations to improve practice

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