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Crane and Matten

Business Ethics (3rd Edition)

Chapter 5

Managing Business Ethics

Lecture 5

Discuss the nature and evolution of business ethics
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
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
Auditing, accounting and reporting

Evolution of business ethics

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

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
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
Difficulty with multiple/novel situations, particularly
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

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

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)

Types of stakeholder relationship

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

Problems with stakeholder


Resource intensity
Culture clash

Assessing ethical performance

Areas of assessment
Often a focus on internal management systems

Impact on natural environment

Broader remit, often including impact on stakeholders

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


of audit scope

of report


Agreement of standards
and performance

Agreement of

Preparation of
accounts and
internal reports



Derived from Sillanp and Wheeler (1997) and Sillanp


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
Unwillingness to disclose sensitive or confidential data

What makes for good social

accounting? (I)

Management policies and systems
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

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

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)

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