WVES 312: Business Ethics

CHAPTER 10: ETHICAL CULTURE, GOVERNANCE AND THE MANAGEMENT OF

ETHICS
Reading
Material
 Chapter 10
 Rathbone, M. 2020. Ethical
culture, governance and the
management of ethics (In
Understanding business &
ethics in the South African
context pp. 197-215.
Pretoria: Van Schaik
Publishers).
 After completion of the Understanding the World of Business Ethics
module, the student should demonstrate:
 Integrated knowledge and critical understanding of, as well as an ability to
correctly evaluate and apply the philosophical underpinnings of the
field of Business Ethics in terms of ethical theories, strategies for
moral decision making, the nature of organisations, governance and
management.
 The ability to critically analyse their own and alternative foundational
views on knowledge and theories within the field of Business Ethics.
 Coherent knowledge and appreciation of social justice and diversity in
all its forms within the field of Business Ethics.

Module outcomes:  The ability to reflect on the values, ethical conduct and justifiability of
decisions within the field of Business Ethics in order to develop an ethic
of care and social responsiveness.
 The ability to apply the philosophical underpinnings of Business Ethics
to make a meaningful contribution to society through understanding
and critical thinking within a diverse social, cultural and economic
society.
 The ability to identify, analyse, critically reflect on and address
complex issues and/or challenges related to Business Ethics with others
by means of objective, reasonable, rational, and sound arguments in
accordance with the rules of practice relevant to Business Ethics.
 On completion of this study unit, you ought to be able
to:
 Understand and analyse the different business
theories, organisational culture, management of
ethics, governance and strategy;
Study Unit 2  Analyse case studies based on the acquired
Outcomes: knowledge; and
 Critically evaluate business and ethics from the
perspective of the acquired knowledge in the South
African context.
  Understand the role of ethical culture and climate in
the functioning of business
Learning  Understand the role of context in the culture of an
organisation
outcomes of  Understand the impact ethical culture and context in
Chapter 10 (197) the management of ethics
 Understand the impact of ethical culture and context
in governance
  Reflect on the practical functioning of a
business (practical business environment)
 Ethical culture and climate will be used to
reflect on business context
 Business theory influences the hermeneutical
Introduction (198- (framework of understanding) functioning of a
199) business
 Each theory has strengths and risks
 E.g. Shareholder = self-interested; egotistical;
narcissistic
 Bigger national culture (African Moral theory
and Ubuntu)
  Ethical culture reflects the theories that are operational
in business
 Ethical culture needs to be managed for business to be
sustainable
Introduction  Distinction between ethical culture and climate:
differentiate between actual operations and
(198-199) perceptions
 The greater the distance is between operations and
perceptions the greater the business is at risk
Ethics Climate and
Organisational culture
(200)
 Organisational culture: refers to
the values, beliefs, traditions and
practices that are shared by
members of the organisation
 It is a normative aspect that
prescribes behaviour
 Direct impact on how
engagement with stakeholders
 Contains the ethical principles
that guide the business
  There are two aspects to ethics in organisational
culture:
Ethics Climate and  Ethical climate: related to the perceptions of
stakeholders (media, engagement, experience and
Organisational policies)
culture (200)  Ethical culture: has to do with the presuppositions and
values of the organisation (important for meaning
creation and functioning)
Ethics Climate  Ethics climate

and  Based on the shared perspectives of stakeholders

Organisational  Perceptions are subjective (however requires consensus) and

dynamic
culture (201)  Build trust and reputation
 Victor and Cullen 2 Dimensions for ethical culture: 1) Moral
philosophy
 1) Egoism; self-interested view (e.g. profit)
 2) Benevolence: well-being (e.g. philanthropy)
 3) Principle: Rules of conduct (e.g. codes of ethics)
Ethics Climate  Ethics climate

and  Victor and Cullen 2 Dimensions to ethical culture: 2) Locus

of analysis or Perspective of decision-making
Organisational  1) individual or personal perspective: perceptions of
culture (201) stakeholders (e.g. benefit or gain of individual experiences)
 2) local perspective; internal aspects and procedures of the
organisation (e.g. benefit of the organisation)
 3) cosmopolitan perspective: interaction between business and
general society (e.g. benefit of society)
  Ethics climate
 Please see table 10.1 Theoretical ethical climate types on p 202
 3 types of work climates in terms of trust:
 1) egotistical climate:
 focuses on self-interest, profit and efficiency (narcissistic)
 Can create mistrust between internal and external stakeholders

Ethics Climate and 

(ethical deficiency)
Associated with individualism, abuse of power, competitiveness

Organisational 
etc.
Shareholder focused business theory

culture (202)  2) caring climate:

 Focuses on welfare of the community (shared value)
 Conductive to trust between stakeholders, commitment and
support
 Care, helpfulness, friendship, collective interest, goodwill and
transparency
 Stakeholder and stewardship theories (look beyond profit as a
single aim)
  Ethics climate
 3 types of work climates in terms of trust:
 3) deontological climate:
 Formal with predetermined ethical
principals
Ethics Climate and  Cognitive forms of trust i.e. personal
morality, company policy and legislation
Organisational  Cognitive form of trust is an ethical
culture (202) contract; rules, norms, principles,
procedures, professionalism, wellbeing
of the community, ethical codes and
conventions
 Associated with shareholder theories
  Ethical Culture
 The state of a business’ morality at a particular
time
 Ethical presumptions or ethical framework
shared by members of a business
Ethics Climate and
 More in-depth involvement with meaning
Organisational creation
culture (202-203)  More casual effect on the operations of business
 Good ethical culture is required for positive
behaviour and well-being
 Direct influence on how business interact with
stakeholders
Ethics Climate and Organisational culture (203)

 Ethical Culture:
 i.e. focuses on a shared experience (SS 1.1)
 The ethical culture of a business is reflected in the code of ethics
 Code of ethics: a document that articulates the ethical culture (can be viewed as
normative) or it can underscore ethical vision of the business that describe ethical
standards (can be viewed as aspirational)
 Ethics Climate and Organisational culture (203-204)

 Ethical Culture
 Virtues of multi-dimensional model for measuring ethical culture (normative criteria):
 1) Clarity: manage employees expectations i.e. clear division between ethical and unethical
behaviour
 2)Congruency of supervisors: good examples by people in positions of authority
 3) Congruency of management: good examples by people in positions of authority
 4) Feasibility: create an environment for ethical behaviour (work hours, budgets etc)
 5) Supportability: support systems to help employees to follow ethical standards
 6) Transparency: knowledge of clear and just consequences
 7) Discussability: environment to discuss ethical issues
 8) Sanctionability: consequences of both ethical and unethical behaviour
  Ethical Culture
 These 8 virtues can be subdivided into three
categories:

Ethics Climate  Self-regulatory (clarity, congruency of managers and

supervisors), self-providing (feasibility and

and supportability) and self-correcting (transparency,

discussability and sanctionability)

Organisational  Please see Table 10.2 Three categories of virtue on p

204
culture (203-204)  Organisational values have a direct impact on
governance and management
 One important aspect of developing an ethical culture
is ethical leadership
  Governance: it is a system by which an organisation is
directed and controlled.
 An important aspect of governance is the ethical direction the
company will take
 The governance of ethics is an important part of governance
because ethics is involved in every aspect of business

Governance  Governance differs from management:

 Governance is essential for an organisation to be
(204-205) accountable to all stakeholders (limits excess and
narcissism).
 Governance is a means to highlight the contextual nature
of business and sustainability
 Adam Smith: the balance between sympathy and self-
interest function together as a means to underline that
fact that business is embedded in a socio-ethical system
that limits excess and narcissism
Governance (204-205)

 Governance differs from management:

 Management is concerned with the day-to-day functioning of an organisation
 Ethics also require management (management of ethics)
 This focuses on the ethical culture of an organisation
 Management of ethical culture is underpinned by a particular set of ethics (ethics of
management)
 In SA the Kings Reports play an important role in guiding the development of a
sustainable ethical culture as well as in the management of ethics
Governance (205)

 The KING report

 Was instituted to assist organisations to improve governance
and ethics
 It is non-legislative and focuses on principles and practices
of governance
 Focus areas of KINGS Report: Leadership, good
governance and sustainability
  The KING report
 King I:
 governance codes for directors and boards of listed
companies, certain state owned enterprises and banks
 Integrated approach that underlined financial, regulatory and
stakeholder engagement
 KING II:

Governance  Highlights sustainability, specifically in terms of the Earth

summit of 2002

(205-206)  Includes the role of corporate boards and risk management

 Exists alongside regulatory mechanisms e.g. Companies Act
no 71 of 2008 and JSE
 KING III:
 Governance, strategy and sustainability are integrated
 Integrative reporting on long-term value
 Applicable to all organizations (incl. public, private and non-
profit)
  The KING report
 KING IV: apply and explain approach, inclusive and
self-regulatory

Governance Fundamental concepts:



 Integrative thinking
(206)  Organisation as integral part of society
 Corporate citizenship
 A stakeholder-inclusive approach
 Sustainable development
  The KING report
 Six principles of KING IV (ICRAFT):
 Integrity (acting in good faith beyond
compliance)
 Competence (knowledge, skill and
Governance (206) development)
 Responsibility (Conduct)
 Accountability (answerable)
 Fairness (stakeholders)
 Transparency (action)
Governance (206)

 The KING report

 The objectives of the KINGS IV report:
 1) integrative corporate governance
 2) broaden acceptance of organisations and sectors
 3) reinforce corporate governance as integrative
 4) Transparent and meaningful reporting to all stakeholders
 5) corporate governance as ethical consciousness and practice
 KING IV, Good Governance
and Small Businesses
HTTPS://WWW.YOUTUBE.COM/WATCH?V=3YF30FR-XFK&AB_CHANNEL
=BUSINESSLIVE
Managing, measuring and reporting (207)

 Managing ethics
 Managing ethical culture of an organisation is crucial to identify risk and avert
reputational damage
 The function of ethics committee:
 1) Monitoring operations
 2) Raising attention of the board
 3) Reporting to stakeholders
Managing, measuring and
reporting (208)

 Measuring ethics
 Two types of measuring instruments: qualitative and
quantitative
 Quantitative: Collecting large samples of data through
dedicated (measure particular aspects or perceptions of an
organisation) instruments e.g. questionnaires.
 Qualitative: developed to obtain greater clarity and the
dynamics of a particular research question. E.g. focus
groups and interviews
 Strict policy of research ethics that organisations have to
adhere to (voluntary, anonymity and privacy)
Managing, measuring and reporting (208)

 Reporting
 The aim of the measuring instruments is to provide data to substantiate the ethics climate
and culture of an organisation
 Data is administered by the ethics committee
 Reported to the governing board and then stakeholders
 The board provide instructions to the ethics committee on risks and problems
 The ethics committee must implement, monitor and report
 i.e. governance is a dynamic leadership function in which measurement, reporting.
Implementation and monitoring are involved
Managing, measuring and
reporting (208-209)

 Leadership
 Leadership positions and their functions:
 1) Board: responsible for governance, ethical direction and
monitoring of operations
 2) CEO: public figure and ethics role model
 3)Ethics officers: managing the ethics offices, collecting
data on ethical culture, reporting, training and identifying
risks
 4)Line managers: interpreting ethical culture to employees
and ethical role model function
  UBUNTU
 Identity in SA is greatly influenced by Ubuntu (See
SA context and Chapter 8)

UBUNTU (209-  The implication is that identity is directly

influenced by the community
210)  Ubuntu in the workplace:
https://www.youtube.com/watch?v=BrnhdY0B7Cg
&ab_channel=TEDxTalks
  Governance and the SA context
 Aspects of stakeholder theory is clearly imbedded
within the KING reports

SA context and  However, it is in conflict with the Companies Act

(shareholder theory, agency theory)
UBUNTU (210-  “the directors of a company and its governing body,
have a fiduciary duty towards that company and the
211) directors must act in the best interests of the company”
 KING IV: a social or ethics committee should be
constituted part of the governance of each organisation
to give expression to a stakeholder approach
SA context and UBUNTU (210-211)
 Governance and the SA context
 Khomba & Vermaak argue that King reports are in line with African moral theory of
Ubuntu
 “stakeholder-centred approach to corporate governance is in resonance with the African
Ubuntu philosophy, where an organisation is seen as a community consisting of
different interested members (stakeholders). Therefore, the premises of the Ubuntu
philosophy that govern the African continent are in support with principles and practices
of modern business ethics and corporate governance”
 Ubuntu highlights the organisation as a community within a community of relations that
increase the common good
 Stakeholder theory and Ubuntu are not the same thing! They have deeper philosophical
differences.
 Homo economicus and Ubuntu
SA context and 

 Kaptein argued for a universal model for ethical conduct

UBUNTU (211-
 Based on a deduction of Aristotle’s virtue ethics (SS 1.2)
212)
 Functions as a normative framework that characterises ethical
business
 Provides concrete virtues to improve ethics (deontological/
moral absolutism / non-consequentialism)
 May not be applicable to all circumstances or all types of
businesses
  Homo economicus and Ubuntu
 Nussbaum notes that many African business leaders
experience “internal conflicts
 “dominant capitalist pattern is the exact opposite of
SA context and more equitable imperatives and economic justice
UBUNTU (211- called for by Ubuntu”
 Homo economicus (J.S. Mill): individualistic and
212) rationalist view of humanity that is solely focused
on making money.
 Seeks self-interest at all cost
 Erodes personhood and communal identity
  Homo economicus and Ubuntu
 Extraction capitalism: a form of capitalism and
organisational culture that is narcissistic and
focuses on the extraction of human and natural
SA context and resources with the aim of increasing profit at the
UBUNTU (211- expense of labour, communities and the
environment
212)  Karl Marx critique of capitalism
 Implication of economic inequality and poverty
that is perpetuated by such organisational
culture
  Homo economicus and Ubuntu
The legacy of colonialism in SA business community
SA context and


 People of across different ethnic groups were still

UBUNTU (211- more inclined towards individualism
 Perpetuation and business culture
212)  Denounces caring behaviour (due to female gender
stereotypes)
Review questions (213):

 What is the difference between ethics climate and ethical culture of an

organization?
 What role does contextual difference play in the ethical culture of an
organization? Use Ubuntu as an example.
 What is the difference between the management and governance of an
organization?
 What are the King reports and why are they important for the governance of
organizations in SA?
 Explain why effective management of ethics is crucial for responsible
governance?
 What is an ethics code and how does it relate to governance?
 What is the business theory that underpins the King reports and why is it
problematic from the perspective of African moral theory, according to
some?
REMEBER
 Efundi quiz 2:
 On SU 2.1 & SU 2.2
(chapter 9 and chapter 10)
 Opens 12h00 on Thursday,
12 April
 Closes 12h00 On Friday,
13 April
 30 Marks: 18 short
questions, 3 Case study
short questions
 45 mins