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Managerial Decisions or Organizational Ethical Failures?

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1 Managerial Decisions or Organizational Ethical Failures?
Pedavena, 12 Giugno 2010 Bounded Business Ethics Managerial Decisions or Organizational Ethical Failures?  Sustainability Advisory Services Simone de Colle University of Virginia

2 My Research Approach What are the sources of unethical behavior within business organizations? What is “unethical”? What are the (organizational/societal) consequences of (individual) ethical failures? (btw: not only negative…) What is a “Bounded Business Ethics” approach to investigate these problems? What can this approach tell us more about the Heineken-Pedavena case? 2

3 Sources of unethical behavior Organizational Ethical Failures
Bounded Business Ethics Kant/Mill/Aristotle Gauthier (1982) Rest (1986) FAILURE OF MOTIVATION Moral Motivation /Intent (weak/lack of) Issue-related (Jones, 1991) Context-based (Trevino 1986; Buttlefield, Trevino & Weaver, 2000) AWARENESS FAILURE Moral Awareness (lack of) FAILURE OF IMAGINATION Moral Imagination (paucity of) Werhane (1999) Rorty (2007) 3 of 6: FOCUS OF MY RESEARCH Organizational Ethical Failures Freeman (1994) Harris and Freeman (2008) SEPARATION BIASES Separation Thesis (perpetuation of) Kets De Vries (1980, 1984, 1991) Messick and Bazerman (1996); Messick (1999) Reynolds (2006) Milgram (1974) Tenbrunsel & Smith Crowe ‘08 PSYCHOLOGICAL FAILURES Neurosis and other psycho-logical traps (influence of) Simon (1947) Dunfee & Donaldson (1994) Chugh, Bazerman, Banaji (2005) FAILURE OF BOUNDED RATIONALITY/ETHICALITY Bounded Rationality & Ethicality

4 What is “ethical”? In their Academy of Management Annals review of 30 years of research on ethical decision-making, Tenbrunsel and Smith-Crowe (2008: 547) states: “In our review, it became readily apparent that one notable void in the field was a definition of the fundamental concept of “ethical”… ……without a universal understanding of the core dependent variable, research will remain inconsistent, incoherent and atheoretical”.

5 From “unethical behavior” to Organizational Ethical Failures
My tentative definition: OEFs are decisions within business organizations that: Involve unethical conduct in the decision-making process; and/or 2) Fail to continuously equilibrate in a fair and efficient way stakeholder interests. A Definition: I use organizational ethics failures (OEF)instead of ‘unethical conduct’, the term commonly used in business ethics literaturefor it allows to identify and address a wider range of business decisions and corporate strategies that, in my view, appear to be questionable from an ethical point of view. OEF include some decisions that are not usually considered as “unethical conduct”, but are, in my view, a manifestation of a particular kind of ethical failures, that is, Stakeholder Equilibration Failures. Clearly, not every organizational failure is an ethical failure: the management of a company could make perfectly ethical decisions and optimally balance stakeholder interests, but still the company’s performance might be poor, due for example to bad product design or external factors, such as economic recession. But, on the other hand, I argue that every organizational ethical failure will generate, over time, a loss of value for some stakeholders. In particular, Type II OEFs (i.e. failures in the equilibration of stakeholder interests) generate outcomes that fail to accomplish the purpose of any business organization, i.e. to create value for all its stakeholders. These include both decisions that destroy value and decisions that fail to pursue an opportunity to create value for the organization’s stakeholders Organizational Ethical Failures Unethical Conduct Stakeholder EquilibrationFailures = + Decisions that generate behavior that is “illegal or morally unacceptable to the larger community” (Jones, 1991) or violate “accepted moral norms of behavior” (Trevino et al. 2006 Decisions that fail to balance stakeholder competing claims in a fair and efficient way (Venkataraman, 2002). 5

6 Stakeholder EquilibrationFailures
More on OEFs Traditional Business Ethics research Organizational Ethical Failures Unethical Conduct Stakeholder EquilibrationFailures + = Type I: Unethical conduct is necessarily an ethical failure in the process of decision making, but not necessarily an ethical failure in the outcomes; Type II: Stakeholder equilibration failures are necessarily ethical failures in terms of the outcomes of the decision making process; Not every organizational failure is an ethical failure; On the other hand, every Type II OEF will generate, over time, a loss of value for some stakeholders. Traditional Business Ethics research is focussing on “Type I OEFs” (“Unethical Conduct”). A Definition: I use organizational ethics failures (OEF)instead of ‘unethical conduct’, the term commonly used in business ethics literaturefor it allows to identify and address a wider range of business decisions and corporate strategies that, in my view, appear to be questionable from an ethical point of view. OEF include some decisions that are not usually considered as “unethical conduct”, but are, in my view, a manifestation of a particular kind of ethical failures, that is, Stakeholder Equilibration Failures. Clearly, not every organizational failure is an ethical failure: the management of a company could make perfectly ethical decisions and optimally balance stakeholder interests, but still the company’s performance might be poor, due for example to bad product design or external factors, such as economic recession. But, on the other hand, I argue that every organizational ethical failure will generate, over time, a loss of value for some stakeholders. In particular, Type II OEFs (i.e. failures in the equilibration of stakeholder interests) generate outcomes that fail to accomplish the purpose of any business organization, i.e. to create value for all its stakeholders. These include both decisions that destroy value and decisions that fail to pursue an opportunity to create value for the organization’s stakeholders 6

7 From Traditional Business Ethics…
Heineken/Pedavena “Business decisions” (as “Amoral Decisions”) CLEAR ETHICALLY JUSTIFIABLE DECISIONS CLEAR UNETHICAL CONDUCT GRAY ZONE: IS THIS ETHICAL? Separation Thesis BOUNDED BUSINESS ETHICS: ITS EXPLANATORY DOMAIN …To Bounded Business Ethics CLEAR ETHICALLY JUSTIFIABLE DECISIONS CLEAR UNETHICAL CONDUCT GRAY ZONE: IS THIS ETHICAL? Heineken/Pedavena Organizational Ethical Failures ?

8 Decision-Making and Organizational Ethical Failures
Start of the decision making process Ethical Conduct Unethical Conduct Organiza- tional Failure (poor perf.) Good Organiza- tional performance (fair & efficient) Stakeholder Equilibration Stakeholder Equilibration Failure (fair & efficient) Stakeholder Equilibration Type I OEF (process) Type II OEF (outcomes) Type III (Process outcomes) A MODEL INTEGRATING OEFs we can develop a model (see fig.) that shows the theoretical linkages between decisions making and organizational ethical failures, and between organizational ethical failures (of different types) and organizational performance. This model rejects the distinction between “business” and “ethical” decisions, and between “moral” and “amoral” decisions, and enables us to capture ethical failures both at the process and the outcome levels. There is no “amoral” decision: business and ethics are entangled

9 The case of Heineken-Pedavena (1/2)
Bounded Business Ethics The case of Heineken-Pedavena (1/2) On September 22nd 2004 Heineken Italy decided to close down the brewery of Pedavena, a small town in the Italian Dolomites, by the 31st of December 2004, and redistribute all beer production to the other 4 breweries owned by the Group in Italy. In the press release, Heineken’s Board explained its decision by pointing out that: “…the strong competition by the other groups operating in Italy and other companies exporting in this country, require that Heineken strives for adequate levels of efficiency in production, which the Pedavena brewery is not able to provide because of its objective limitations, despite the important contribution, commitment and professionalism proven by the people of the Pedavena factory”. 9

10 The case of Heineken-Pedavena (2/2)
Bounded Business Ethics The case of Heineken-Pedavena (2/2) From the perspective of traditional business ethics it does not seem to be a clear case of “unethical conduct”: no ethical principle or moral standard seems to be violated. However, if we look at it from the perspective of Bounded Business Ethics, the following question becomes relevant: Is Heineken’s Italy decision to dismiss its brewery in Pedavena an Organizational Ethical Failure? Research questions Why did Heineken managers (initially) decide to close the Pedavena brewery? Why did the Pedavena workers reject the very generous redundancy package? Why did the civil society of Pedavena (and other volunteers) decide to mobilize themselves to “save the brewery”? 10

11 Spazio ai protagonisti….
Bounded Business Ethics Spazio ai protagonisti…. Qualche anno dopo…. 11


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