Managers Role in an Organizations Ethical Policies - Case Study Example

?The Manager’s Role in an Organisation’s Ethical Policies and Practice White collar crimes, such as financial fraud, corruption, illegal practices and the like, which commonly characterise corporate scandals, have caused the demise of many companies worldwide – famous examples of which are the US’s Enron Corporation and Worldcom, the UK’s Independent Insurance and Marconi, Ireland’s Elan, Germany’s Kirch, the Netherlands’ Royal Ahold, and Australia’s HIH Insurance and One. Tel (Hill 2004, p. 369). Contrary to some beliefs that ethics is inappropriate to business organisations, the impact of white collar crimes not only on concerned companies but more so on the society as a whole has doubtlessly demonstrated the importance for business organisations to have a well-defined ethical policies that must be observed and practiced consistently. To better establish the prime importance of ethics in making organisational decisions, he first section of the paper centres on the following questions: How should ethics be defined and viewed in organisations and how do ethical and unethical practices impact on the organisation and society as a whole? However, understanding the importance of ethics for business organisations is one thing, but defining who shall take the lead to ensure ethical policies and practice in the organisation –the board or the manager – is another thing. The second section of the paper discusses this question by delving into the decisive role that managers play in the organisation. It asserts that the role of managers in the organisation’s ethical policies and practice is actually more compelling than that of the Board. In fact, the manager’s ethical misconduct and abuse of discretion had caused the downfall of many corporations. Although it is true that the Board takes the higher stake in the organisation than the manager; it is the manager who exactly deals with the in and out daily operation of the organisation. Organisational Ethics Policies and Practice Ethics essentially pertains to what is right and wrong (Sims 2003, p. 7; Lerbinger 1997, p. 293), good and bad, virtuous and evil or that which illustrates fairness, justice and due process, for example not harming others, respecting others, dealing honestly, helping those in need, fulfilling promises and contracts, and more (Lerbinger 1997, p. 293). When ethics is to be incorporated in organisational policies Whitton (2009) emphasises two dimensions: first, that policies should encourage ethical conduct by the rank and file – this includes specific policies on ‘giving and receiving personal gifts, ancillary employment, conflict of interest situations, patronage, political activity, fraud, harassment, political activity, and whistleblower reporting of defined wrongdoing’; and second, that policies should encourage ethical management to safeguard the integrity of the organisation – this concerns policies that define criteria for ‘competent financial management, merit based recruitment and advancement, transparent accountability for ... decision-making, effective protection of [those] who disclose misconduct, fraud and corruption, meaningful program evaluation, and workable disciplinary processes’. As such, Whitton furthers that organisational ethics policy is an assurance that the organisation will live-up to what it commits itself to promote, provide and serve and that it will conduct itself fairly, giving due consideration not only to itself but to society at large. (p. 2) Similarly, this is what Lerbinger (1997) refers to as corporate social responsibility, which to him transcends the law. (p. 293) Evidently so, Whitton (2009) has rightly stated that effective ethics policy must always be considered part of the organisation’s overhead cost, because failure to do so would be more costly to the organisation and the society as a whole. In other words, organisations should always pay attention to ethical issues to avoid greater loss. For example data show that, US businesses are losing $40 billion annually due to workplace theft and that retail thefts are committed more commonly by employees, themselves than customers. (p. 3) Besides, unethical management practices have caused non-monetary losses, which Sims (2003) identified as follows: futile flow of information in the organisation, unhealthy relationships creating seen and unseen problems in the organisation, employees’ low performance, uncertain organisational loyalty, and high rate of absenteeism (p. 17). On the positive side, Sims furthers that observing business ethics in management practices would benefit organisations, as exemplified in younger companies like Johnson & Johnson, Coca-Cola, Gerber, Kodak, 3M, and Pitney Bowes, which ethical conduct of their businesses enabled them to raise their market value to a higher annual rate of 11.3% in 40 years time compared with the older Dow Jones industrials’ 6.2% (p. 20). Although ethics in business is not unanimously viewed to be appropriate,1 the grave effect of corporate scandals on the world market and the vital role management has played in these corporate scandals have demonstrated the necessity of ethics in managing organisations. As Wilbur (1997) explains, even if management is expected to satisfy multi-stakeholders interest, especially those of the share holders, there is little assurance that public interest and even corporate interest would be given greater weight over the manager’s self-interest (p. 576). Even earlier, Chester Barnard (1938) had already noted this organisational dilemma that he emphasised in his classic, Functions of an Executive, the need for executives to “hold a personal moral code and be able to create a moral code for others” (cited in Lerbinger 1997, p. 294). Hence Kracher and Wells (1998) have rightly noted the need for organisations to employ good managers (p. 82). Nevertheless, Lerbinger (1997) has noted that for ethics to be truly incorporated in an organisation, it should be able to transform organisational behaviour, which he proposes could be achieved in two ways: by “developing a corporate conscience and [by] factoring ethics into the decision-making process” (p. 310). However, Goodpaster (1990) and Cooke (1991) warn that corporate conscience should be carefully differentiated from its counterfeits like public relations, which, unlike corporate conscience, is more concerned with the form rather than substance. In the final analysis however, Lerbinger (1997) states that the decisions and actions of executives, which essentially represent the organisation, define the organisation’s ethical standard and integrity, thus confirming the vital role of managers in an organisation’s ethical policies and practices. Manager’s Role in an Organisation’s Ethical Policies and Practice Literatures define the manager’s role in an organisation’s ethical policies and practice in varied ways. For instance, Kloppenbog and Petrick (1999) have correctly emphasised the role of managers in utilising organisational meetings, which consume 75% of their time, as an effective avenue for the organisation to improve work processes and to develop group character. Agreeably, organisational meetings, having been regarded usually as simple organisation rituals, are oftentimes conducted mechanically, failing to achieve its optimum usefulness – the unification and direction setting of the organisation or worse, defeating its very purpose. (p. 166) As Johan (1994), Scholtes et al. (1996) and Moberg (1997) have similarly recognised, meetings are arenas by which the organisation’s decision-making processes and work group ethics can be improved, thereby refining the organisation’s culture and developing group character (cited in Kloppenbog and Petrick 1999, p. 166). Kloppenbog and Petrick further explain that group character develops with virtuous practices but diminishes with vice in meetings. Thus managers must conduct meetings virtuously, which Kloppenbog and Petrick define to be the intellectual, moral, emotional, social and political virtues. (p. 166) Agreeably, Petrick (1998) specifies manager’s intellectual virtues in strengthening the organisation’s collective readiness in responding to ethical dilemmas ethically (p. 124). On the other hand, Richtermeyer et al. (2006) in defining corporate ethical values have noted the manager’s direct role in establishing the ethical climate in the organisation. Thus they need to sometimes undergo training, to enable them to make the organisation’s ethical values responsive to the changing needs of times. As such, they support the importance of setting formal codes of conduct, because without this, differences may have been unnoticeably confusing the employees. (p. 23) More importantly Whitton (2009) notes that formal codes of conduct or ethical policies help institutionalise ethics in the organisation, which can also serve as a check in balance in the organisation (p. 4). Whereas, Key (2002) stresses the delicate role of managers in exercising their discretion, which if they abuse or fail to exercise would surely harm the organisation, as have been illustrated by various corporate scandals. Although some authors (Hannan & Freeman 1977), have express reluctance to manager’s discretion (cited in Key 2002, p. 218), Key has pointed out correctly the organisational necessity of manager’s discretion, because aside from the fact that not all managers are trained to deal with ethical questions they confront every day, it would be impractical to call for a board meeting just to deal with daily ethical questions. The negative side of this however is the more likely possibility of managers abusing their discretionary powers, which had been one of the causes of many corporate scandals. Thus, the role of managers in an organisation’s ethical policies and practice is actually more compelling than that of the Board, because it is the manager, who deals with the organisation’s inner and outer situations from top to bottom. It is therefore highly possible for managers to know more about the organisation than the Board, especially so when too much discretion is given over the manager – just like what had happened with the HealthSouth (Combs 2007, p. 1). Thus contrary to what many argue, the ethical conduct of managers could save corporations not only from losing billions of dollars every year for theft, law suits and settlements, but most importantly from the possibility of falling down. Reference List Combs, K. 2007. ‘Behind the headlines: Lessons learned from corporate scandals, The Society’s Online Newsletter, November, pp. 1-6. Viewed 22 October 2011 < http://law.case.edu/lectures/files/2008-2009/20090417_Combs_Article2.pdf>. Cooke, R. A. 1991, ‘Danger Signs of Unethical Behavior: How to Determine If Your Firm Is at Ethical Risk’, Journal of Business Ethics, vol. 10, April, p. 252. Gini, A. 1998, ‘Moral leadership and business ethics’, in Ethics: The Heart of Leadership, ed J.B. Ciulla, Praeger, CT, pp. 27-45. Goodpaster, K. E.1990, ‘Can a corporation have an environmental conscience?" in The Corporation, Ethics, and the Environment, eds W. M. Hoffman, R. Frederick, and E. S. Petry, Jr., Quorum Books, New York, pp. 25-38. Hill, J. G. 2004. ‘Regulatory responses to global corporate scandals’, Wisconsin International Law Journal, vol. 23, no. 3, pp. 367-416. Key, S. 2002. ‘Perceived managerial discretion: An analysis of individual ethical intentions’, Journal of Managerial Issues, vol. 14, no. 2, pp. 218+. Kloppenbog, T. J. & Petrick, J. A. 1999, Meeting management and group character development, Journal of Managerial Issues, vol. 11, no. 2, pp. 166. Kracher, B. and Wells, D. L. 1998, ‘Employee selection and the ethic of care’, in Managerial ethics: Moral management of people and processes, ed. M. Schminke, Lawrence Erlbaum Associate, NJ, pp. 82-97. Lerbinger, O. 1997, The crisis manager: Facing risk and responsibility, Lawrence Erlbaum Associates, NJ. Petrick, J. A. 1998, ‘Building organizational integrity and quality with the four Ps: Perspectives, Paradigms, Processes, and Principles’, in Managerial ethics: Moral management of people and processes, ed M. Schminke, Lawrence Erlbaum Associates, NJ, pp. 115-131. Richtermeyer, S. B., Greller, M. M. & Valentine, S. R. 2006, ‘Organizational ethics: Measuring performance on this critical dimension, Accounting Quarterly, vol. 7, no. 3, pp. 23+. Sims, Ronald R. 2003. Ethics and Corporate Social Responsibility: Why Giants Fall, Praeger, CT. Whitton, H. 2009, ‘Organisational ethics policies: A primer’, Chr Michelsen Institute U4Brief, April, pp. 1-4, viewed 19 October 2011 . Wilbur J. 1997, ‘Self-interest,’ in The Blackwell encyclopedia of management (Vol. 11), Blackwell, England, pp. 576-577. Read More