1. Institutionalising Ethics Leadership and Structure

2. INSTITUTIONALISING ETHICS IN CORPORATIONS TWO BASIC RULES: 1. Identify (and state) your rules of operation clearly 2. Avoid organisational hypocrisy

3. UNDER THESE GENERAL RULES CAN BE GROUPED THE FOLLOWING SPECIFIC RULES: 1. Leadership publicly committed to ethics in actions as well as words. 2. Develop policies and procedures for addressing unethical behaviour. 3. Develop a code of ethics and communicate it to staff and public. Use it in decision making and ethics training. 4. Institute an ethics office to field ethics questions; to monitor compliance with ethical objectives and employee perceptions; and to recommend revision of the code, policies and procedures.

4. Institutionalising ethics 2 5. Adequately resource the ethics office. 6. Develop ethics training programs. 7. Reward ethical behaviour. 8. Punish unethical behaviour. 9. Do not place employees in competitive positions where this can be avoided. 10. Do not place individuals under avoidable ethical strain: group decisions are more likely to be ethically safe and transparent than individual ones.

5. Implications for management Successful managers have:  Traits of the head - initiative, co- operativeness, flexibility, and coolness under pressure. At the expense of  Traits of the heart - honesty, friendliness, compassion, generosity, and idealism. Michael Maccoby

6. Emotional detachment and moral disengagement Note the responses of NASA to Challenger, of Union Carbide to Bhopal, of Exxon to the Exxon Valdez disaster, of Bearings Bank to Nick Leeson’s dealings, of Alan Bond to the Tooheys hotel leaseholders, of Jodie Rich to One Tel, of Jeffrey Skilling to investors, of Ray Williams to HIH, of Gordon Gekko to the world …

7. Jackall quotes a manager in Moral Mazes “What is right in the corporation is not what is right in a man’s home or in his church. What is right in the corporation is what the guy above you wants from you. That’s what morality is in the corporation.”

8. Jackall’s five rules of corporate morality (survival) (1) Don’t go around your boss; (2) even if your boss invites dissent, tell him or her what he or she wants to hear; (3) if the boss wants something dropped, drop it; (4) anticipate the boss’s wishes - don’t force him or her to act the boss; (5) do not report what the boss does not want reported, cover it up and remain silent.

9. Goodpaster’s critique of goal fixation He calls “the unbalanced pursuit of goals by an individual or group” teleopathy. This is a suspension of “on-line” moral judgement as a practical force in the life of an individual or group. It substitutes for the call of conscience the call of decision criteria from other sources: winning the game, achieving the goal, following the rules laid down by some framework external to ethical reflection.

10. Roles … again  No licence to act unethically  Roles add to responsibilities, they do not exempt  Suggest that one is impersonating another like an actor – that the function of the role is what matters and the occupant doesn’t  Contribute to lost responsibility in organisations

11. Consider the structure of roles in organisations ‘Rather than ask “What was going on with those people to make them act that way?”, we ask, “What was going on in that organization that made people act that way?”’ James Waters

12. Asking this does not relieve individuals of responsibility This question moves the focus to the incentives for good behaviour, the disincentives against bad behaviour, and the culture of risk or safety, retribution or support in which individuals and teams act.

13. A sick culture exhibits the following features 1. There is a "kill the messenger" ethos in the organisation - justifies distortion and concealment of information. 2. There is a low degree of confidence in the accuracy of internal reports. 3. Despite claims to doing the right thing, in the last analysis, top management does the most expedient thing. 4. Employees do not know of or refer to written ethics policies. 5. The operative value of the organisation is: if it's legal it's ethical. 6. Top management's stated concern for ethics is for public relations. 7. Managers while basically truthful are willing to deceive in order to accomplish organizational or personal goals. 8. Managers do not believe there is an obligation to be candid where could harm personal or organizational goals. 9. People who ignore ethics but produce bottom line results get promoted.

14. How do you discover this? An ethics audit. An ethics audit is a survey of the members of an organization to test their perceptions of the health of its ethical culture. Building an ethical culture begins with an audit of the prevailing culture.

15. Take Enron’s culture, mirrored in its traders …  Goodpaster, item 5 - The operative value of the organisation is: if it's legal it's ethical.  If California’s deregulation was not satisfactory, does that entitle Enron and its traders to manipulate the market? Is this ethical?  Does legal conduct somehow get transformed into ethical conduct by circumstances?  Does the conduct of the traders show any recognition of ethics or the humanity of others or of any value beside power and its manifestations?

16. Reflect on the attitudes of the traders: they show a lot. Kevin: So the rumour’s true? They’re fuckin’ takin’ all the money back from you guys? All those money you guys stole from those poor grandmothers in California? Kevin: So the rumour’s true? They’re fuckin’ takin’ all the money back from you guys? All those money you guys stole from those poor grandmothers in California? Bob: Yeah, grandma Millie, man. But she’s the one who couldn’t figure out how to fuckin’ vote on the butterfly ballot. Bob: Yeah, grandma Millie, man. But she’s the one who couldn’t figure out how to fuckin’ vote on the butterfly ballot. Kevin: Yeah, now she wants her fuckin’ money back for all the power you’ve charged right up - jammed right up her ass for fuckin’ $ 250 a megawatt hour. Laughter Kevin: Yeah, now she wants her fuckin’ money back for all the power you’ve charged right up - jammed right up her ass for fuckin’ $ 250 a megawatt hour. Laughter  These guys were beating up grandmothers, not regulators, legislators or legal draftsmen.

17. Hans Friedrich was in the SS  He shot Jewish women and children. When asked what he felt when he pulled the tigger, he replied “nothing”. He just concentrated on the job of aiming straight.  This attitude is a problem for anyone seized by teleopathy, not just those whose goals are intrinsically evil.

18. Attending to the psychological contract When people join an organization they enter into what has been called a "psychological contract" - this is the unspoken set of agreements between employees and the organisations that employ them. One writer has argued that "the psychological contract may be the central determinant in whether a person behaves ethically" (Sims 1991, 495). Hence, the psychological contract can be a licence for unethical conduct.

19. Leadership Studies show that the single most important factor in employees adhering to ethical standards is example from the top. This is a more potent than peer pressure, or background. Managers ought to respond to problems identified in an ethics audit by making public statements about the organization's ethical commitments, the ethos it is working to establish and its expectations of employees.

20. Leadership Means   Identifying organisational values   Leaders following these values themselves   Promoting values to others   Ensuring values reflected in all actions & decisions   Having the courage to insist on ethical conduct

21. Leadership means   authorising and empowering others to behave ethically   modelling ethical behaviour and decision- making   establishing practices which clearly demonstrate a commitment to ethical values and behaviour

22. trust responsibility trust responsibility Ethical Empowerment / Ethical Authorisation Top-Level (Department Head, CEO) Next Level (Supervisors, Managers, …) Next Levels Organisation

23. Leadership in industry  If no one leads, no one follows and there will be no change.  Mercedes Benz developed and patented the passenger safety cell, but gave it away to other manufacturers.  This is not inconsistent with Benz’s culture of product development and safety.  Contrast this with Ford’s development of the Pinto and its attitude to safety issues in the name of competition.

24. The Pinto In 1968 Ford adopted plan for a subcompact on a 2x2x2 plan (2,000 pounds, $2,000 in 2 years). In pre-launch tests, Ford discovered that rear end collisions propelled the gas tank onto the real axle and unless modified, the car always caught fire. Ford did not modify the Pinto. Why?

25. Ford’s Cost/Benefit Analysis Ford applied a generic cost/benefit analysis to all kinds of accident based on National Highway Traffic Safety Administration estimates of the worth of a human life – around $200,00 – and its own figures on deaths from car accidents. The analysis is as follows:

26. Future productivity losses  Direct: $132,000  Indirect: 41,000  Medical Costs - Hospital: 700; Other: 425  Property Damages: 1,500  Insurance administration: 4,700  Legal and court expenses: 3,000  Employer losses: 1,000  Victim's pain and suffering: 10,000  Funeral: 900  Assets (lost consumption):5,000  Miscellaneous accident costs: 200  Total per fatality $200,725

27. Benefits  180 burn death, 180 serious burn injuries, 2,100 burned vehicles  Unit cost: $200,000 per death, $67,000 per injury, $700 per vehicle  Total Benefit: (180 x $200,000) + (180 x $67,000) + (2,100 x $700) = $49.5 mil. Costs Costs  Sales: 11 million cars, 1.5 million light trucks  Unit cost: $11 per car, $11 per truck  Total cost: 12.5 million x $11 = $137.5 million

28. On this analysis, Ford decided not to modify the Pinto chassis. In 1978 in Indiana, a Ford Pinto with three young women aboard was struck in the rear and all three burned to death. This was only one of a number of such incidents, but Ford was indicted this time. The judge instructed the jury that Ford would be guilty of wrongful death if it could be shown to have been indifferent to the dangers of the Pinto. Ford was acquitted.

29. Moral analysis  Did the end justify the means?  Was Ford’s price of a human life defensible?  Was Ford’s cost benefit analysis conducted ethically?

30. Law and regulation  Lobby for a regulatory environment appropriate to the times. A good company don’t have to be ethical alone and lose competitive advantage because it is ethical.  Self-regulate and be firm about it. Codes are only one form of this. Policies and procedures complement ethical directives and exhortations.

31. CODES  Rule of law  Common floor  State fundamental values  Can be codes of conduct or ethics or hybrid  Must be used frequently to be effective  Should be part of induction and development  Must cover whole organisation  Can be developed at top

32. Code of EthicsCode of Conduct general values / principles judgment“empowering”“aspirational”specific prescriptions / directives uniformity enforceable statement of something specific

33. Use examples Reward good behaviour and never punish it, even if brings problems - Sherron Watkins; Cynthia Cooper. Recognise good conduct and use it in staff training. Punish poor behaviour and never reward it, even if it brings results - Enron. Use examples of ethical failure in training, but balance them with examples of excellence.

34. An aid to clarity: Decision models  Do NOT make the decision for you  Document the decision and the process  Make plain what values are sacrificed  Aid in moral reasoning  Objectify moral reasoning and allow an example to be set

35. LAURA NASH’S MODEL OF ETHICAL DECISION MAKING 1. Have you defined the problem accurately? 2. How would you define the problem if you stood on the other side of the fence? 3. How did this situation occur in the first place? 4. To whom and to what do you give your loyalty as a person and as a member of the organisation? 5. What is your intention in making this decision?

36. 6. How does this intention compare with the probable results? 6. How does this intention compare with the probable results? 7. Whom could your decision or action injure? 8. Can you discuss the problem with the affected parties before you make your decision? 9. Are you confident that your position will be as valid over a long period of time as it seems now? 10. Could you disclose without qualm your decision or action to your boss, your CEO, your family, society as a whole? 11. What is the symbolic potential of your action if understood? If misunderstood? 12. Under what conditions would you allow exceptions to your stand? Laura Nash, “Ethics without the sermon”, Harvard Business Review, 59, 1981, 79-90.

37. Summary of what is to be done CodesLeadership & mentoring Ethics training Incentives and disincentives Ethics officersHotlines CommitteesOmbudsman Newsletters Performance standards These all support a culture of ethical excellence

38. Whistleblowing: a last resort  Public exposure of a danger to public interest  Permitted when a serious issue is not addressed within an organisation  Not internal  Involves a betrayal of kinds  Is a costly remedy  Motives of whistleblower not central  Difficult to legislate protection for

39. External support for whistleblowing difficult  Protected disclosures in Australasia have not resulted in more than a handful of charges and no successful prosecutions.  General distrust of whistleblowers despite legislated protection.  Whistleblowers’ associations can be unhelpful.

40. Criteria for legitimate whistleblowing  There is an immediate and serious issue of public concern.