CHAPTER 5: MANAGING BUSINESS ETHICS

Business ethics management is the direct attempt to formally or informally manage ethical issues or
problems through specific policies, practices and programmes.

The most relevant aspects of business ethics management are those that are clearly visible and directed
specifically at resolving ethical problems and issues.

Typical components of business ethics management

 Mission or values statements

– These are general statements of corporate aims, beliefs, and values.

• AECOM (mission and values)

• Sustainable development goals (UN)

• Institute for sustainable infrastructure

 Codes of ethics

– A voluntary statement that commits an organization, industry, or profession to specific

beliefs, values, and actions and/or that sets out appropriate ethical behaviour for
employees.

• Organizational or corporate codes of ethics.

• Professional codes of ethics.

• Industry codes of ethics.

• Programme or group codes of ethics

• Reporting/advice channels

– Gathering information on ethical matters is clearly a important input into effective

management. Providing employees with appropriate channels for reporting or
receiving advice regarding ethical dilemmas can also be a vital means of identifying
potential problems and resolving them before they escalate and/or become public.

• Risk analysis and management

– Managing and reducing reputational and financial risk has become one of the key
components of business ethics management. Managing business ethics by identifying
areas of risk, assessing the likelihood and scale of risk and putting in place measures to
mitigate or prevent such risks from harming the business has led to more sophisticated
ways of managing business ethics.

• Ethics governance processes

– Ethics governance processes comprise specific mangers, officers, and committees. In

some organizations, specific individuals or groups are appointed to co-ordinate and/or
take responsibility for managing ethics in their organization. Designated ethics officers
(under various titles) are now fairly prevalent, especially in the US where an Ethics and
Compliance Officer Association (ECOA), set up in 1992, has grown to around 1,300
members, including representatives from more than half of the Fortune 100.
 – In Europe, Asia, and elsewhere, such positions are less common, but the ECOA now
boasts members across five continents and, in countries such as the UK and France
organizations such as the Institute of Business Ethics and the Cercle Européen des
Déontologues (European Circle of Ethics Officers) provide membership services to
ethics managers.

• Ethics consultants

– Business ethics consultants have also become a small but firmly established fixture in
the marketplace, and a wide range of companies have used external consultants rather
than internal executives to manage certain areas of business ethics.

 Ethics education and training

- With greater attention being placed on business ethics, education and training in the
subject has also been on the rise. Formal ethics training has tended to be more
common in the US than elsewhere.

• Stakeholder consultation, dialogue and partnership programs

– It is argued that business ethics and communication ethics are inextricably linked.
There are various means of engaging an organization´s stakeholders in ethics
management, from surveying them to assess their views on specific issues to including
them more fully in corporate decision-making.

• Auditing, accounting and reporting

– We come to a set of closely related activities that are concerned with measuring,
evaluating and communicating the organization´s impacts and performance on a range
of social ethical and environmental issues of interest to their stakeholders.

– Unlike most of the previous developments, these aspects of business ethics

management have not been pioneered in the US but rather in Europe.

Evolution of business ethics management

Few, if any, businesses likely to use all tools and some do not use any. This will particularly be the case
with small- and medium-sized companies, which tend not to introduce the more formal elements of
ethics management and reporting. Escalating adoption of most if not all components (US and UK
surveys). Change in emphasis concerning the purpose of business ethics management

– Previously primarily focused on managing employee behaviour

– Increasing attention to management of broader social responsibilities

Setting standards of ethical behaviour

Designing and implementing codes of ethics

Codes of ethics are voluntary statements that commit organizations, industries, or professions to specific
beliefs, values, and actions and/or set out appropriate ethical behaviour for employees

4 main types of ethical codes

– Organizational or corporate codes of ethics : single organization. Sometimes they are

called codes of conduct or codes of business principles.
 – Professional codes of ethics: medicine, law, marketing…

– Industry codes of ethics: Electronics industry code developed by Dell, Hewlett Packard,
and IBM. It has since been adopted by a range of multinationals, such as Apple, Cisco,
HTC, Intel, Lenovo, Microsoft, Samsung, and Sony

– Programme or group codes of ethics : For example, a collaboration of various business

leaders from Europe, the US, and Japan resulted in the development of a global code
of ethics for business called the CAUX Roundtable Principles for Business

Prevalence of codes and ethics

– Increasingly common

– Substantial rise in usage during 1990s and 2000s

– Vast majority of large US companies have a code of ethics while 93% of FTSE 350 have a
reported ethics programme of which a code ethics is the most prominent feature (Institute of
Business Ethics 2016)

– Less prevalent in SMEs (Spence and Lozano 2000)

Areas in codes of ethics

• Compliance, integrity and anticorruption, e.g. avoiding bribes and political contributions

• Conflicts of interest, e.g. policing gifts and gratuities and disclosure of financial interests.

• Employee, client, and vendor information. e.g. maintaining records and privacy.

• Emploment practices. Preventing workplace harassment, equal opportuity, and diverstisy.

• Environmental issues.

• Internet, social networking, and social media. E.g. blocking prohibited sites.

Aspirational codes. Definition of principles or standards that the organization, profession, or industry
believes in or wants to uphold.

Rules-based codes. Setting out of practical guidelines or rules for employee behaviour, either generally
or in specific situations (such as accepting gifts, how customers are treated, etc)

– Organizational or corporate codes of ethics,

– Professional codes of ethics,

– Industry codes of ethics,

– Programme or group codes of ethics.

Areas

Compliance, integrity and anticorruption

Conflicts of interest, Employee, client, and vendor information.

Emploment practices.

Environmental issues.

Internet, social networking, and social media

Critiques of ethical codes:

• Clear prescription for employees means lack of flexibility

• Difficulty with multiple/novel situations, particularly cross-cultural

• Vague, generalised statements of obligation

• PR device

• Questionable control mechanisms that potentially influence employee beliefs, values and
behaviours

• ‘suppress’ individual moral instincts and emotions in order to ensure bureaucratic conformity
and consistency

Effectiveness of codes of ethics

Effectiveness of a code is in the implementation and administration (Schwartz, 2004)

Suggestions for successful implementation:

• How codes are written: codes should be tailored to the organization, and written in an
appropriate tone.

• How codes are supported: codes should be supported by management & backed up with
training.

• How codes are enforced: codes should be backed up with reporting lines, violations should be
communicated to employees, and incentives (both positive & negative) should be created &
communicated.

Global codes of ethics

Can organizations devise one set of principles for all countries in which they operate?

• Consider some examples

– Gift giving in Japan vs. the UK

– Equal opportunity commitments in Saudi Arabia vs. UK

• MNEs should be guided by 3 principles (Donaldson 1996):

– Respect for core human values

– Respect for local traditions

– Belief that context matters when deciding right and wrong

• Global codes should define minimum ethical standards

 – E.g. OECD Guidelines for Multinational Enterprise, UN Global Compact

Ethical dilemma: Getting explicit about the code of conduct

- Duty based: means strictly following the code of ethics, which would imply firing him
- Utilitarianism: more flexible than duty based, allows options in between, like reducing his salary
as a punishment (maximizes the number of people with happiness because he is not fired, so it
does not affect other employees/profit of the company)

Managing stakeholder relations

• Stakeholder management. The process by which organizations seek to understand the interests
and expectations of their stakeholders and attempt to satisfy them in a way that aligns with the
core interests of the company.

• ‘Stakeholder impact analysis enable a company to identify the stakeholders most crucial to its
survival and to make sure that the satisfaction of their needs is paramount’ (Hill and Jones
2001:45)

• Instrumental Stakeholder Theory: Attempts to answer the question of whether it is beneficial

for the corporation to take into account stakeholder interests. 3 key attributes likely to
determine perceived importance or salience of stakeholders. (Mitchell, Agle and Wood (1997)

Power: The perceived ability of a stakeholder to influence organizational action.

Legitimacy: Whether the organization perceives the stakeholder´s actions as desirable, proper
or appropriate.

Urgency: The degree to which stakeholder claims are perceived to call for immediate attention.

• Amid rising stakeholder expectations, corporate responsibility communication- a process of

anticipating stakehoder´s expectations to provide true and transparent information on
economic, social and environmental concerns- has become a key element of stakeholder
relationship management.

• Corporate responsibility communication has predominately taken the form of annual reports,
websides, and corporate advertorials.
Problems with stakeholder collaboration

Resource intensity: Stakeholder communication and collaboration can be extremely time-consuming

and expensive.

Culture clash: Companies and their stakeholders often exhibit very different values and goals.

Co-ordination: Even with the best intentions of all parties, there is no guarantee with stakeholder
collaboration that a mutually acceptable outcome can always be reached

Temperamentality: At the same time as they are collaborating on one issue or project, companies and
their stakeholders may also often be in conflict over another issue o project.

Co-optation: Some critics have raised the question of whether, by involving themselves more closely
with corporations, some stakeholder groups are effectively just being co-opted by corporations to
embrace a more business-friendly agenda rather than maintaining true independence.

Accountability: When stakeholders such as business and government collaborate “behind doors”,
accountability to the public may be compromised.

Resistance: As a result of these and other concerns, organization members or external parties may try to
resist the development of collaborative relationships, thus preventing the partners from fully achieving
their goals.

EXAM:

1. Explain the theory (is it teleological/deontological)

Assessing ethical performance

Areas of assessment:

• Ethical

– Often a focus on internal management systems

• Environmental

– Impact on natural environment

• Social

– Broader remit, often including impact on stakeholders

• Sustainability

– Focus on triple bottom line

‘Social accounting’ as generic term. Social accounting is the voluntary process concerned with assessing
and communicating organisational activities and impacts on social, ethical, and environmental issues
relevant to stakeholders.

Stakeholder dialogue: social accounting process

Basic materiality matrix

Why do organizations engage in social accounting? Both practical and moral reasons. Four main issues:

• Internal and external pressure

• Identifying risks

• Improved stakeholder management

• Enhanced accountability and transparency

Very hard to demonstrate that they do this for pure environmental reasons (mostly to have a good image
to stakeholders)

Disincentives for social accounting:

– Perceived high costs

– Insufficient information

– Inadequate information systems

– Lack of standards

– Secrecy
 – Unwillingness to disclose sensitive or confidential data

What makes for ‘good’ social accounting? (I)

Transparency: not only reporting, but letting others know what you are doing

• Auditing and certifying

– Social accountability standards SA 8000

• Reporting

– The Global Reporting Initiative (GRI)

• Reporting assurance

– AA1000S Assurance Standard

Environmental management. Business efforts to minimize the negative environmental impact of a firm´s
products throughout their lifecycle.

Environmental management systems – the process through which organisations implement

environmental goals, policies and responsibilities and ensure regular auditing and reporting of these
approaches, beyond legal compliance.
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