Oliver Laasch, Roger N. Conaway, by Center for Responsible Management Education (CRME) and Roger N. Conaway, Tecnológico de Monterrey (ITESM)

After reading this chapter…

“We Are Innocent!” Are You Really? Innocent implicitly had developed an ethical corporate identity of high values and literally had “innocence” in anything the company did. Innocent claimed to be all natural and organic, to use green electricity, and to apply fair sourcing practices. “A sad day for independent and ethical business,” “You just killed your business,” “Your business is tainted” are but a few of the comments made by customers after Innocent accepted major funding from The Coca-Cola Company (TC) in 2009.

ETHICS: MANAGING FOR MORAL EXCELLENCE

Origins of business ethics

Table 5.1 Milestones in the Development of Business Ethics

Figure 5.2 Figureheads and Central Ideas of Business Ethics

Figure 5.3 The Development of Business Ethics

Institutionalization, Status Quo, and Future Business implementation Ninety-six percent of Fortune 500 companies have a code of ethics. Budgets and staffing for the ethics and compliance functions are expected to remain stable and even slightly increase. Ethics and compliance officer Ethics & Compliance Officer Association (ECOA) Annual rankings E.g. “World´s Most Ethical” (WME) Companies “Ethics Quotient” Organizations dealing with business ethics in practice Better Business Bureau (BBB), the Business Roundtable (BRT), and the Ethics Resource Center (ERC)

Basic concepts of business ethics

Food for Thought

Defining Business Ethics and Related Concepts Levels of Analysis Business ethics is the interdisciplinary study of ethical problems in business. Individual ethics is the study of moral issues as encountered by single individuals. Organizational ethics is the study of moral issues on an organizational level. Economic ethics is the study of systemic moral issues of the economy.

Figure 5.4 Levels of Analysis in Business Ethics

Moral Dilemma A moral dilemma is a situation where right or wrong is questioned through a set of alternative actions that are likely to have significant effects on oneself and others. Is the decision to be made likely to have significant effects on others? Does the decision to be made provide choices and alternative actions? Is the decision perceived as ethically relevant, about moral right or wrong?

Figure 5.5 The Relationship between Ethics, Law, and Compliance

Morality and Values Morality describes norms, values, and beliefs that define right and wrong for a specific individual, or a group in a certain situation. Values are aspired ideal goals, beliefs, and concepts that shape thinking and actions.

Categories of Values Persons: Persons must be protected. e.g. justice, fairness, and equality Virtue: Attached to a “good” character. e.g. honesty, self-discipline, and responsibility Happiness: Search for happiness. e.g. security, personal gain, and contentment Relationship: Social nature of human beings. e.g. caring, participation, and community Goals: Achieving business purpose. e.g. productivity, efficiency, and growth

Figure 5.6 A Nexus of Opposing Views on Business Ethics

Figure 5.7 Business Ethics: Functions, Domains, and Disciplines

Domain I Normative ethics

Food for Thought

Figure 5.8 Major Moral Ethical Theories

Virtue Ethics: “Be Virtuous!” Virtue ethics judges decisions as right that are taken based on a virtuous mind-set and congruent with a good, “virtuous” life.

Groups of Virtues To the inside To the outside Toward fairness courage and self-control To the outside generosity, magnificence, magnanimity, and sociability Toward fairness justice

Deontology: “Follow Higher Rules and Duties!” Deontology judges right or wrong by referring to higher duties that must be derived from universal rules.

Deriving Higher Duties Through Kant´s Three Maxims Universal law and the golden rule Would you want your action to become universally lawgiving? Would you wish everybody else to act the same way? Noninstrumentalization, or end in itself: Do you treat rational (human) beings as means or as an end? It is desired not to use human beings for a certain purpose, but instead to align your action for the good of humanity. The kingdom of ends Would other rational beings who are part of the society, or the “kingdom of ends,” and who applied rules one and two, judge as you did?

Consequentialism: Judge by the Outcome! Consequentialism is the moral theory judging right or wrong based on outcomes. Utilitarianism bases judgments of right and wrong on the principle of creating the greatest happiness possible for all affected by a decision.

Complementary Consequentialist Decision Criteria 1. Act utilitarianism “Does the single act I am conducting create more pleasure or pain?” 2. Rule utilitarianism “Does the type of behavior in general create more pleasure or pain?” 3. Distribution fairness “Are costs and benefits created and distributed fairly?”

Figure 5.9 A 360-Degree Ethics Assessment

Domain II descriptive ethics

Food for Thought

Descriptive Ethics Descriptive ethics serves to describe, understand, influence, and predict moral behavior of individuals and groups.

Figure 5.10 Components of Ethical Decisions and Actions

Figure 5.11 Individual and Situational Influences on the Components of Ethical Decision and Action

Individual versus Situational Factors Individual factors are all factors uniquely associated with the individual decision maker that can be divided  into demographic and psychological factors. Situational factors are all external factors influencing a decision that can be divided into issue-related and context-related factors.

Individual Factors Age Gender National and cultural characteristics Demographic Psychological Age Gender National and cultural characteristics Religion Education Employment Moral philosophy and ethical judgment Intelligence and need for cognition Locus of control Values and attitudes Awareness and moral imagination

Situational Factors Moral intensity Moral framing Moral complexity Issue-related factors Context-related factors Moral intensity Moral framing Moral complexity Significant others Rewards and sanctions Organization size, structure, and bureaucracy Ethics management tools Culture and climate National and cultural context Industry type Competitiveness

Domain III ethics management

Food for Thought

Ethics Management and Related Terms Ethics management is the process of managing ethical problems through management tools. Ethical management describes individual managers’ ethical behavior in their immediate sphere of managerial influence. Ethics performance is the sum of right and wrong decisions and behaviors in a specific entity and for a determined time period. Moral excellence is an above-average ethics performance.

Figure 5.14 Assessing Ethics Performance through All Components of Ethical Decision and Action

Figure 5.15 Ethics Performance Assessment Approaches

Figure 5.16 Ethics Performance Models Based on Moral Development

Figure 5.17 Implemented Ethics Checklist: Types and Exemplary Items

Table 5.3 Ethics Performance Assessment Methods: Different Assessment Types and Scopes

Figure 5.18 The Ethics Value Chain of Ethics Management Tools and Their Contribution to the Ethics Performance Margin

Tools for Ethics Management Ethics management tools are managerial means by which to improve ethics performance. Departmental ethics management tools are standard management instruments used throughout mainstream business departments and functions to improve ethical performance. Specialized ethics management tools are tools with the purpose of managing ethics throughout the whole organization.

Specialized Ethics Management Tools Normative leadership Codes of ethical conduct Organizational structure Ethics departments and officers Feedback mechanisms Whistleblowing, councils, ombudsmen, and audits

Figure 5.19 Quality Criteria for Codes of Conduct according to Ethisphere

Ethics Programs and Ethical Culture An ethics program is a set of ethics management instruments chosen by a specific organization to create ethics performance. An ethics culture describes a situation where ethical behavior has become part of the natural character of the company.

Figure 5.20 The Ethics Management Process

Figure 5.21 Types of Ethical Problems

Principles of Ethics: Managing for Moral Excellence Business ethics is the interdisciplinary study of moral issues in business. It can be applied on the levels of individual, organizational, and economic ethics. Business ethics overlaps with the fields of law and compliance. It is related to morality, as ethics provides the rules for deciding what is right or wrong, while morality explicitly describes right or wrong for a specific group and situation. Interpretations of business ethics vary greatly and can be subdivided into a narrow and a broad perspective. The three domains of business ethics are normative ethics, based on moral philosophy; descriptive ethics, based on behavioral psychology; and ethics management, based on management studies. The three major theories of moral philosophy, inside the domain of normative ethics, are virtue ethics, based on a virtuous life; deontology, based on rules; and consequentialism, based on achieving the best-possible outcome.

Principles of Ethics: Managing for Moral Excellence Descriptive ethics aims to describe, understand, influence, and predict ethical behavior of individuals and groups. It is based on the ethical decision-making process, which revolves around the four stages of ethical awareness, judgment, motivation, and behavior and takes both individual and situational factors into account. Ethics management is the process of managing ethical problems through management tools with the goal of improving ethics performance. Ethics performance can be assessed through the three approaches of moral development, implemented ethics, and observed behavior. Ethics management tools to achieve ethics performance fall into the categories of ethical management, departmental ethics management, and specialized ethics management. If applied well, those tools serve to create a self-reinforcing ethical organizational culture.

People in Ethics, Managing for Moral Excellence