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Crane and Matten

Business Ethics (3rd Edition)


Chapter 5

Managing Business Ethics


Lecture 5

Overview
Discuss the nature and evolution of business ethics
management
Codes of ethics
Current theory and practice regarding the management of
stakeholder relationships
The development of social, ethical, and environmental
accounting, auditing and reporting tools
Different ways of organising for the management of business
ethics, and critically assess the role of organization culture and
leadership
Extent to which developments discussed in this lecture
represent genuine commitment to business ethics or
sophisticated public relations

What is business ethics management?

Business ethics management is the direct


attempt to formally or informally manage
ethical issues or problems through specific
policies, practices and programmes

Typical components of business


ethics management

Mission or values statements


Codes of ethics
Reporting/advice channels
Risk analysis and management
Ethics managers, officers and committees
Ethics consultants
Ethics education and training
Stakeholder consultation, dialogue and partnership
programs
Auditing, accounting and reporting

Evolution of business ethics


management
Few, if any, businesses likely to use all tools
and some do not use any
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
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


Professional codes of ethics
Industry codes of ethics
Programme or group codes of ethics

Prevalence of codes and ethics


Increasingly common
Substantial rise in usage during 1990s and
2000s
2/3 of large UK firms have some kind of
formal ethical code whilst almost all large US
firms have a code of ethics (Weaver et al. 1999)
Less prevalent in Europe, and in SMEs (Spence
and Lozano 2000)

Content of codes and ethics:


Prevalence of issues found in codes of conduct

Source: OECD (2001:8


)

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
Suggestions for successful implementation
Maximise participation of organisation members in
development stage to encourage commitment and
buy in (Newton, 1992)
Discipline employees found in breach (Webley 2001)
Follow-through (Trevio et al. 1999)

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 India vs. UK

MNEs should be guided by 3 principles


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

Managing stakeholder relations

Assessing stakeholder importance:


an instrumental perspective
Instrumental perspective
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)
3 key attributes likely to determine perceived
importance or salience of stakeholders (Mitchell et al., 1997)
Power
Legitimacy
Urgency

Types of stakeholder relationship

Challenge
Sparring partners
One-way support
Mutual support
Endorsement
Project dialogue
Strategy dialogue
Task force
Joint venture or alliance

Problems with stakeholder


collaboration

Resource intensity
Culture clash
Schizophrenia
Uncontrollability
Co-optation
Accountability
Resistance

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

Defining social accounting


Social accounting is the voluntary process
concerned with assessing and
communicating organisational activities and
impacts on social, ethical, and environmental
issues relevant to stakeholders

Social accounting established by


The Body Shop
Policy review

Stakeholder
dialogue

Determination
of audit scope

Publication
of report

Verification

Agreement of standards
and performance
indicators

Agreement of
objectives

Preparation of
accounts and
internal reports

Stakeholder
consultation

Stakeholder
surveys
Internal
audit

Derived from Sillanp and Wheeler (1997) and Sillanp


(1998)

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

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)

Inclusivity
Comparability
Completeness
Evolution
Management policies and systems
Disclosure
External verification
Continuous improvement

What makes for good social


accounting? (II)
Schemes in place to tackle specific aspects of
social accounting:
Auditing and certifying
Social accountability standards SA 8000

Reporting
The Global Reporting Initiative (GRI)

Reporting assurance
AA1000S Assurance Standard

Organizing for business ethics

Formal ethics programmes

Compliance orientation

Four ways of
organizing for
business ethics
management

Values orientation
External orientation
Protection orientation

Source: Trevino et al. (1999)

Informal ethics management: ethical


culture and climate
Organizations can and should proactively develop an
ethical organizational culture organizations with
ethics problems should take a culture change
approach to solving them (Trevio and Nelson, 2007: 256)

Culture change approach (very problematic)


Improvements in ethical decision-making have been widely argued
to require a managed transformation of the organizations values in
order to create a more ethical culture
Cultural learning approach (promotes moral imagination)
Focus on smaller subcultural groups within the firm
Factionalism and dissent in order to promote learning (Starkey 1998)

Business ethics and leadership


Leaders often said to set ethical tone in organisations
All leadership is value laden (Grint, 1997:325)
Cultural change approach
Leaders role to articulate and personify the values the
organisation aspires to
Inspire and motivate employees to follow their lead

Cultural learning perspective


Role of leadership one of participation and empowerment in
order to foster moral imagination and autonomy

Ethical behaviour is not to be promoted simply through the


promulgation of specific beliefs and principles, but
through facilitating personal moral engagement,
dialogue, and choice (Crane, Knights, and Starkey 2008)

Summary
Business ethics has varying approaches: e.g., in Europe
emphasizes an external, socially based orientation rather
than concentrating on ethical codes to ensure compliance
Question effectiveness of ethical codes
Danger of overstating the benefits of business ethics
management tools
Crucial role for the motivations of the use of these tools,
the process of their development, and the implementation
and follow-up