OVERVIEW

The subject of ethics has received increasing attention in organizations recently. Political appointees have to go to great lengths to avoid even the appearance of a conflict of interest, sometimes by selling stock in a company of which they own a fraction of one percent. Many organizations are downsizing and encountering ethical issues when they determine whom to layoff. If they have made progress in affirmative action hiring in the last ten years, is it fair to keep the longest-tenured employees and undo all of that progress? The subject of ethics comes up in countless places in the functioning of organizations. It would be impossible to address even several of these topics in a meaningful way in this unit. Nonetheless, we have selected a few topics of great importance. The unit is divided into two sections: personal ethics in business and organizational ethics.

In both cases, the first step is to resolve the question of what is the person's or organization's responsibility in a business setting. Some ethicists contend that individuals do not and should not have the responsibility to act ethically in business in the same way that they would outside the organization. Game ethics is the term these experts use to describe the set of ethics that are acceptable in business dealings, but would not be acceptable in personal settings. At the organizational level, the question is, what is an organization's responsibility in society? Does it serve exclusively an economic function or does it have larger socioeconomic obligations as a member of society? Experts such as the famous economist Milton Friedman argue that businesses are only good at economic matters and that society should establish other institutions to be responsible for social matters. Other ethicists contend that organizations cause significant social effects when they are conducting business and that they bear at least some responsibility for managing these social effects.

Ethical issues are difficult to resolve because they involve values and because ethics cannot be taught. Both at the personal and organizational levels, ethics are promulgated throughout organizations primarily in the example set by managers and in decisions about who gets promoted. The most effective way of instilling ethics and corporate social responsibility is to ask important questions. Many organizations create a checklist of these questions to help guide employees in doing what is right. In this manner, employees must exercise judgment in situations rather than apply a "cookbook" of ethical codes.

OBJECTIVES

Compare and contrast game ethics versus personal ethics in business

Explain how following the items on an ethical checklist can help ensure ethical behavior in organizations.

Describe the arguments for and against the socioeconomic model of broad corporate social responsibility

Illustrate that when organizations are viewed as systems, it is easy to show the need for corporate social responsibility beyond simply making a profit.

DISCUSSION

The topic of ethics has received increasing attention in organizations today. Ethics is a branch of philosophy which deals with the questions of how people should act and live. You can imagine several major areas in organizations in which there are significant questions of ethics. How should an employee act and live in relation to an employer? How should an employer act and live in relation to an employee? How should an organization act with respect to its customers? How should an organization act and live in relation to the community in which it resides? in which significant numbers of its customers reside? These questions are only a few of the major ethical dilemmas in organizational life.

PERSONAL ETHICS in BUSINESS (1st header)

Since the discipline of ethics in business is still developing, no single definition or viewpoint is widely accepted. In this unit, we will use the word ethics within the business context to mean "standards that are used to evaluate the actual practice of business ... to judge as right or wrong, good or bad" (DesJardins and McCall, 1990, p. 4). Notice that the word "standards" is the one that causes communication problems. What standards, or whose standards? The question of standards is often one of values.

Values remain a tricky and amorphous area in organizations primarily because "they are impossible to instill by way of an educational setting" (Kelly, XX, p. 11). Consequently, organizations have not found a good way to standardize ethical values across an organization. We will see below that it is not as simple as writing a code of ethics for employees. Ironically, codes of ethics often result in more, not fewer, ethical lapses. If Kelly is correct, you will not learn ethical behavior by reading this unit. This unit can only provide you with a framework for establishing your own ethical standards. Most people implicitly have such standards, and at the end of the unit you will be asked to discover and articulate what yours might be.

Are Personal Ethics Different in Business? (2nd header)

One area of contention in business ethics is the question of whether or not business relationships are similar to personal relationships. Richard Nixon was famous for his foreign policy principle which stated that countries should not be expected to act morally in the same way that individuals should. Others have made the same distinction in organizations. Albert Carr has argued that "the ethics of business are game ethics, different from the ethics of religion" (DesJardins and McCall, 1990, p. 21). Carr advocates lying and deceiving in business, as long as these deceptions are part of what he calls a game strategy. In such a game, all of the players would expect each side to play its hand as effectively as possible. To continue with the card game analogy, Carr believes in bluffing, which is pretending to have a better hand than you really do have, but not in cheating, by keeping extra cards up your sleeve, for example.

Carr contends that even business people who consider themselves extremely moral engage in game ethics of which they may not even be aware. He suggests that in job interviews, for example, interviewees are more likely to answer questions in the way that they believe is most acceptable to the interviewer, rather than offering a completely candid and truthful answer. Carr also points out that managers "practice some form of deception when negotiating with customers, dealers, labor unions, government officials, or even other departments of their companies" (DesJardins and McCall, 1990, p. 22).

Although Carr wrote a generation ago, a modern technique that encompasses his game ethic is the "spin control" that has become popular in political situations in recent times. In spin control or spin management, the objective is to put a certain spin on events and observations so that other people will interpret them the way the spin master wants. For example, if two candidates have a political debate, their political handlers could each claim victory by emphasizing different points their candidates made or by stating that their candidates exceeded the public's expectations in the debate. In another case, nearly any stand a politician takes is unpalatable to some group of constituents. However, the politician and her staff may develop different explanations for different groups on why the politician took such a stand.

Organizations have the same dynamic. Top executives often make decisions for one set of reasons but explain their decisions with another set of reasons. How often do we read that a senior executive has left the company "to pursue other interests" when we know very well that he has basically been fired? Has your organization ever changed suppliers from one that was working fine to one that offered a lower price? So that they do not look "cheap" the organization will often inflate the importance of the occasional service problem with the old supplier, or tout capabilities of the new supplier that most employees do not believe. Carr would contend that these types of alternative explanations are perfectly acceptable in business ethics.

Lack of Support for Personal Ethics in Organizations (2nd header)

Carr's position is popular but not widely accepted. Even those who disagree with Carr, however, concur that the culture of most organizations is not conducive to personal ethics. Kelly (19XX) has noted that organizations have a tendency to promote what he calls the destructive achiever, someone who "has the charisma of a leader but lacks his operational values; this achiever's net effect on the long-term welfare of the organization is negative" (p. 6). Destructive achievers are able to produce impressive results in the short-term. Kelly points out that even leaders (who by his definition possess operational values) are likely to promote destructive achievers. Because the leaders are secure in their personal ethics, they believe that they will establish a value-laden framework within which the destructive achiever will have to operate.

This belief, however, does not often materialize. A leader is often removed from what happens layers below her, and the destructive achiever is able to sow the seeds of short-term, ethically questionable actions. Recall that we noted in unit 4 that anyone can achieve short-term results by postponing maintenance, cutting research, and reducing training. Each of these actions violates the P/PC balance of Covey's principle-centered leadership. Destructive achievers extract P (production) without investing in PC (production capability).

It is ironic that although destructive achievers (DA's) will appear to be attractive subordinates to leaders, leaders have a very difficult time working for DA's. When leaders have a DA for a manager, "there are likely to be severe disagreements about the subordinate leader's long-range orientation; his apparently unrealistic, 'soft' approach to exercising control and discipline; and his predictable lack of genuine support for the DA's counterproductive behaviors and decisions" (Kelly, 19XX, p. 11). Consequently, organizations tend to encourage behavior that is inconsistent with stated values, and discourage those who work with operational values.

The Root Questions of Personal Ethics (2nd header)

Now that we have learned about game ethics and the organizational acceptance of the destructive achiever, let's examine what is at the root of those beliefs, and how the roots differ from those who believe that personal ethics can be used in organizations. At the core of these different viewpoints are primarily two issues.

1. Should I act as though I will be in this position (or that this organization will be here) forever (or in the foreseeable future)?

2. Should rules and values that are good for others also apply to me?

Advocates of personal ethics in business believe that individuals should be willing to experience the consequences of actions that they take. They contend that "acting as if one will be around forever is a sign that one is acting ethically" (Puffer, 1991, p. 319). From our discussion of systems dynamics in units 3 and 5, we know that systems are characterized by having different short and long term effects. For example, if a manager is willing to cut the customer service staff below what is needed to save money today, is she willing to be accountable for the increase in complaints in the future? Or, if a manager selects a supplier who is not as highly rated because he has a personal relationship with the supplier's key employees, is he willing to be accountable for the inferior supplies?

The second core question above gets at "the most common source of unethical acts" (Puffer, 1991, p. 322) which is a person's belief that rules do not apply to him, because he is, in some way, special. Senior management, for example, the people who set the ethical standards for the organization, are usually the biggest rule breakers. (Kelly, 19XX, p. 16). Covey (1992) speculates that two-thirds of the magazine advertisements targeted at executives invite them "to indulge themselves without conscience" and the ads send the message that "you are now a law unto yourself" (p. 89).

Several studies have shown that people believe they themselves "can handle" something special, but that others cannot. Interviewers have descended through many levels of management ranks in organizations and have found that at each level, managers believe they should have more decision-making authority, but that their subordinates should not. Often the managers will say that they understand why the authority has not been pushed down, because although they would responsibly handle additional authority, their peer managers at that level would not. People do not believe their colleagues or their subordinates are as trustworthy as they are. At least in America, each of us likes to believe he is special. Perhaps people's behaviors at traffic merge points provide the clearest example. Rather than waiting in turn, many drivers will pass by lanes of traffic and try to nose in at the front of the line. These drivers apparently believe that their time is more important than other people's.

The ordinal fallacy suggests a danger in the "I am special" belief. The ordinal fallacy is basically stated as, first I will get into a position of power by whatever means, and then I will use the power responsibly. People justify many things to themselves using this fallacy or a variation of it. Examples include: "I have to embellish my resume to get this job, and then I will always be honest." "If I can play management's game to get one more promotion, then I will be above the game-playing." "I will step on others' toes to get this promotion, and then I'll change things so that no one after me will have to step on people to get promoted." The danger in each of these examples is that "in spite of good intentions, a person's ability to manipulate his environment, combined with the opportunity to do so, quickly outstrips the development of values he knows he's supposed to have" (Kelly, 19XX, p. 11). It is difficult enough to avoid corruption when in a position of power. The ordinal fallacy suggests that if you achieved that position by corrupt means, it is almost impossible to avoid staying corrupt.

Developing Personal Ethics in Business (2nd header)

If you accept the position that personal ethics can be used in business, how do you develop these ethics? After all, we mentioned above that ethics cannot be learned in an educational setting. There are two primary methods by which the ethical standards get perpetuated in the organization: the ethical example of managers and the personal ethics of those who are promoted. We noted in an earlier section that in many organizations forces work against personal ethics and you can see that these two methods amplify those forces. To break this cycle, organizations have to change the personal ethics of managers and change the promotion criteria. The former topic will be addressed here.

Ethical action requires practice and review. This review is, for example, simply learning as we have defined it in unit 1 or the 7 Step Method. Learning an ethical code, however, is not a good way to develop ethical action. In fact, ethical codes can "lead to the encouragement of violations" (Kast and Rosenzweig, 1985, p. 170). This outcome seems counterintuitive (recall that in systems, obvious actions produce unobvious results). The reason that ethical codes encourage unethical actions is that people often see the list of what is forbidden as a complete list. They act as if anything not forbidden is allowed. Moreover, it is impossible to develop a comprehensive ethical code which will provide guidance in every situation where someone is faced with right or wrong.

The most effective method developed thus far for instilling ethical action is asking productive questions to surface ethical dilemmas. Documented ethical responses show that "ethical judgment consists not in getting the right answer all the time, but in consistently asking the right questions" (Puffer, 1991, p. 321). In a training situation, participants will be offered a list of standard questions to ask, and then will be encouraged to add their own personal questions to the list. A sample ethical checklist is shown in Table 8.1. By following a checklist such as Table 8.1, employees are required to exercise judgment, rather than applying rules that they can bend to fit circumstances.

1. How would people who oppose the decision or solution define the problem?

2. What are my motives in making this choice? Am I treating myself as someone special, as an exception to an accepted rule or convention in the organization?

3. Would I be embarrassed to read about my action in the newspaper?

4. Can I truthfully and comfortably explain this decision to customers, my boss, my family, and community members?

5. Will my decision be as valid over time as it seems now, in the short term?

6. Am I willing to accept the full consequences of this decision?

7. Does my decision divide the constituencies of the organization?

8. Did I avoid any of the above questions by telling myself that I could get away with it?

We have glimpsed at what it takes to develop personal ethics in a business setting. If each person in an organization developed personal ethics, would the organization, by definition, be acting ethically? We know from unit 3 that a system is more than all of its parts put together, so the answer is "not necessarily." Let's now consider what it means for an organization to act ethically.

ORGANIZATIONAL ETHICS (1st header)

Many people consider business ethics to be an oxymoron. Businesses were held in high esteem in the 1920s, but the regard for business has not been that high since. Today, businesses seem trapped in the loss of public confidence faced by all institutions including governments, unions, schools, and courts. Some of the statistics are daunting. One poll found that 55% of people believed that most executives are not honest (Kelly, 19XX, p. 16). A Fortune study found that in the 1970s, eleven percent of the 1,043 major corporations "had been involved in at least one major illegal or corrupt practice" (Kast and Rosenzweig, 1985, p. 168).

Perhaps in response to this evidence, by the late 1980s, most large organizations had established a code of ethics for its employees. We noted above that the existence of an ethical code does not ensure ethical action. Moreover, even companies recognized for their ethical codes - Boeing, GTE, Hewlett-Packard, Johnson & Johnson - have guidelines that "are usually either too vague or too detailed for practical use" (Puffer, 1991, p. 319). Researchers also noticed that the ethical codes of most organizations are attempts by the corporations to protect themselves from their employees! These ethical codes primarily cover topics such as: not falsifying a timesheet, conflicts of interest from ownership of competitors or suppliers, not revealing organization proprietary information, not leaving the organization to establish a competing company, and not discriminating against other employees based on race, gender, creed, or religion (so the organization does not get sued).

The Root Questions of Business Ethics (2nd header)

Just as there are core questions at the root of personal ethics, a basic question must be answered when discussing ethical actions by organizations. What is the social responsibility of business? Responses to that question will likely result in different paradigms of business ethics. No one disputes that organizations have been major forces in social change. Some commentators wonder whether organizations should have this role since it is out of their area of expertise. Milton Friedman has persuasively argued that businesses should have strictly economic responsibilities in society. He sees other entities, such as government and charities fulfilling social responsibilities. Following is a brief summary of Friedman's position (adopted from DesJardins and McCall, 1990, p. 29).

1. Managers are hired to be representatives for business owners and it is management's responsibility to follow the reasonable directives of the owners.

2. The owners direct management to make as much money as possible while following society's laws and customs.

3. Fulfilling social responsibilities (such as hiring unqualified youth as interns) costs the organization money.

4. Managers who lose money for the owners are failing to follow the instructions of the owners and failing to fulfill management's responsibility.

Other experts disagree with Friedman in a number of ways. Some agree with Friedman's basic premise but argue that if the organization assumes a long-term perspective, then many actions which appear to be primarily social are actually in the business' best interest. For example, an organization supplying a high school with computer equipment and allowing employees to volunteer as mentors on company time would appear to be altruistic. However, these actions may result in a better educated and better skilled pool of workers that the organization will need to draw from in the future.

Also, most corporations make charitable contributions. These corporations, however, are increasingly seeing their charitable contributions as marketing tools (DesJardins and McCall, 1991, p. 30). An organization which runs a promotion, for example, in which a nickel will be donated to a charity for every video rental can expect that this combination will increase sales, as well as raise money for a charity. It is interesting to note that Adam Smith, the father of the free market system that Friedman espouses, wrote an earlier book Moral Sentiments, in which he suggested that "if we ignore the moral foundation and allow economic systems to operate without moral foundation and without continued education, we will soon create an amoral, if not immoral, society and business" (Covey, 1992, p. 90).

Perhaps on the opposite extreme from Friedman are Goodpaster and Matthews who argued in a Harvard Business Review article that organizations can and should have a conscience and that personal and corporate ethics do belong in organizations. Even Friedman would admit that society has greater expectations of organizations in the areas of ethics and social responsibility than his position would suggest. A report by the Committee for Economic Development shows the areas of responsibility that society is increasingly expecting of corporations. Figure 8.2 contains a graphic illustration of these responsibilities.

The inner circle contains the basic responsibilities as outlined by Friedman. The intermediate circle contains some responsibilities that are required by law to a certain degree, but organizations could do more on their own. For example, product information is an area that has some regulations, but organizations could elect to respond in a more forthright manner. In the outer circle of emerging responsibilities, we have listed some examples that different commentators might suggest businesses should undertake. These examples are merely illustrative.

Corporate Social Responsibility (2nd header)

Those who believe that corporations have responsibilities outside the inner circle of Figure 8.2 use the term stakeholder to identify these constituents. Stakeholders are entities which have an interest in the functioning of the organization and "to whom the organization is responsible" (Kast and Rosenzweig, 1985, p. 159). In the basic economic model, the only stakeholder is the stockholder or owner of the business. All corporate actions are undertaken in the best interests of the owners. Conversely, in the broadest sense, stakeholders of the United States Forest Service, for example, include taxpayers, employees, logging companies, environmental groups, state governments, local governments, forest products organizations, and many others.

Organizations with many stakeholders use a broader socioeconomic model rather than the narrow economic model of business advocated by Friedman. An important concept in the socioeconomic model is corporate social responsibility (CSR) which "is the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract" (Kast and Rosenzweig, 1985, p. 156). CSR is a controversial topic. There have been many debates about this question. Table 8.3 contains a summary of some of the most effective arguments for and against CSR.

Against CSR

The free market system is only efficient when organizations use economic performance as the decision criterion

Businesses should specialize in what they do best. Businesses are not experts on social endeavors

Any resources devoted to CSR rightfully should go to the owners.

CSR hurts the ability of American companies to compete internationally

For CSR

The American market system is only free in theory and does not guarantee optimal use of resources

Businesses are not just economic instruments. Businesses generate significant social effects and they should be responsible for them

In the long run, CSR will enhance owners' profits

An improved society offers the opportunity for better future conditions.

The trend in business is toward greater CSR. One could argue that CSR is consistent with taking a long-term perspective by focusing on total costs and profits rather than initial costs and profits, as discussed in unit 5. CSR is also more compatible with a systems view of organizations, as discussed in unit 3. Clearly, businesses do create significant social effects beyond the economic business model.

Developing Corporate Social Responsibility (2nd header)

In some ways, we have come full circle. Developing CSR is in many ways like developing personal ethics in business. CSR cannot be taught. It is telegraphed in the actions of managers and in promotion selections. Codes of social responsibility are helpful but do not cause socially responsible action. Social responsibility is developed by practice and learning. A checklist of questions is helpful in guiding decisions and behaviors.

There are two additional important considerations in developing CSR. The first is that it is helpful to involve as many people as possible. Because there are so many stakeholders, it is very difficult for a single person to assume each of their perspectives and know how they would think on each issue. Imagine how many perspectives there are on the issue of health care delivery in the United States. The number of viewpoints is mind-boggling. The second consideration brings us back to the economic model. Businesses can frequently perform activities that have social benefits for little or no cost, even in the short term. For example, it costs little or nothing for businesses to hire qualified employees from disadvantaged classes. Furthermore, unethical behaviors and decisions almost always have costs that outweigh the benefits if a rigorous analysis is performed using systems thinking. This sentiment is captured in a closing comment from a Mattel Toys executive.

When enough people set their minds to work, many bad decisions - what you might call the 'unethical' ones - get weeded out, not so much for moral reasons (at least not on the surface), but because there is always an economically better way. (Puffer, 1991, p. 324).

REFERENCES

DesJardins, J. R. and J. J. McCall (1990). Contemporary issues in business ethics. 2nd edition, Belmont, CA: Wadsworth Publishing Company.

Kast, F. E. and J. E. Rosenzweig (1985). Organization and management: a systems and contingency approach. 4th edition. New York: McGraw-Hill, Inc.

Kelly, C. M. (XX, YY). The interrelationship of ethics and power in today's organizations. Organizational Dynamics. pp. 4-18.

Puffer, S. M., ed. (1991). Managerial insights from literature. Boston: PWS-KENT Publishing Company.

REVIEW QUESTIONS

1. Assume you are a commission-based salesperson. You are about to land one of the largest sales of your career. The price you are honing in on is a little higher than usual and will offer a good profit to your company and a substantial commission for you. You think the customer will buy at this price, and then she asks, "Is there anyway you can reduce your price?" Answer the customer's question two ways: first from the perspective of game ethics and secondly from the perspective of personal ethics in business.

Game ethics: once you have the fish hooked, reel it in. Since it appears that you will still close the sale at the higher price, you take the chance and stick with the price.

Personal ethics in business: you probe to discover the reason for the question. You focus on the long-term relationship with this customer and see if you can exceed her expectations. There are many ways of adjusting your proposal besides price. If price is the sticking point and you can still receive a reasonable profit and reasonable commission, you reduce the price to satisfy the customer.

2. What item(s) would you add to the ethical checklist in Table 8.1 to help ensure your own ethical behavior in your organization?

Your answer may include, but need not be limited to the following.

Will I have to coerce others to get them to go along with my decision?

Under what conditions will I allow exceptions to my decision?

This decision shows that I am giving my greatest loyalty to whom or what?

Who is most greatly affected by this decision/solution? Do they agree with it?

What are the first and second-order implications of this decision/solution?

3. Should an organization provide on-site day care for its employees? Trace the arguments for and against this benefit from the perspectives of the economic model and the socioeconomic model.

Against: This benefit only helps employees with small children, providing childcare is not an area of expertise for most businesses, business owners shouldn't have to devote their profits to this cause, and the extra expense of this day care will raise the price of our products and services making us less competitive.

For: Although the benefit will not help everyone, it will help the organization to attract good employees, it will allow these employees to work without being concerned about their children's welfare, it will allow these employees to work more flexibly without having to leave at specific times to pick up children, it will save the employee from dilemmas about whether to place the children in less than desirable day care settings, and more productive workers will allow the organization to be more profitable.

4. Consider a company which owns industrial forestland, logs for lumber, and manufactures wood products all in one county. If the manufacturing process creates smokestack pollution which is harmful to plant, animal, and human life, why should the company be willing to spend money to reduce these emissions?

The company is a system which turns raw materials into finished products. This system is a good example of one in which the organization has to be careful not to allow one unit to optimize at the expense of others. If the manufacturing unit is using the most cost effective processes, but they are harming the environment, then the trees that the company relies on for raw material will be damaged.

INTEGRATING QUESTIONS

1. How can an organization's vision help in providing an ethical framework for employees?

An organization's vision is a statement of the deepest values that employees bring to the workplace, and serves as a guide as to how those values will be lived out at work.

2. If a manager makes a decision and knows that he will receive the long-term consequences of that decision, good or bad, is that enough to ensure that he will make an ethical decision?

No. Since the organization is a system, a given action may have different consequences locally than at a distant part of the system. The manager could make a decision which would be best for him in the short and long term, but be ethically worse for other parts of the organization.

SUGGESTED ACTIVITY

Spend some time considering whether you engage in actions at work that you would not engage in outside of work. Game ethics is not an all or nothing proposition. Everyone probably engages in game ethics at work to some degree. Consider whether or not you bluff, knowingly deceive others to gain advantage, tell half-truths, and others. Are these behaviors acceptable to you or do you think you should change them?

ON-LINE CONFERENCE ASSIGNMENT

Devise an ethical issue that is significant enough for you that you would quit your job because of it. Rather than developing an extreme example which would clearly represent grounds for quitting, try to construct a scenario that comes as close to your "quit/stay line" as possible. Broadcast your scenario to all of the other students in your class. As scenarios come in from other students, read them and note whether you would quit or stay in the scenarios they concoct. Keep a running tally to determine whether you seem to have higher or lower standards than the class for quitting a job on ethical grounds.