Evaluation Of Examples Of Corporate Ethical Malfeasance

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Introduction

Try to make sense of these following situations: Enron, was once a leading American energy, commodities, and services company, and the country's seventh largest company. What became of the company now? - Bankrupted in 2001; Arthur Andersen, was once one of the "Big Five" accounting firms along side with the likes of Pricewaterhouse Coopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG. What became of the company now? - Found guilty of criminal charges relating to the firm's handling of the auditing of Enron; Lehmen Brothers, was once a well known global financial services firm that involved in a wide spectrum of investment businesses, What became of the company now? - Bankrupted in 2008; The list goes on and on.

The companies mentioned above were no dwarfs, but household names and the darlings of the business world. They were the movers and shakers in their respective industries. However, none of these names are in the same positions that they were once in before and worse, their names are now being uttered not without the perceptions of distrust and disbelief. What happened to these once reputable companies? What could have burdened such mighty powers that they crumbled?

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To put it simply, these companies - its members - have lost the ethical compass that they drifted into disasters. The catastrophic effect on organization due to the deficiency of ethics among its members was explained by Drucker when he wrote that an individual "if he lacks in character and integrity - no matter how knowledgeable, how brilliant, how successful - he destroys. He destroys people, the most valuable resource of the enterprise. He destroys spirit" (Management 287). Slocum, Jackson, and Hellriegel posited that unethical or illegal conducts by rouge individuals in business organizations will and have in many instances resulted in bankruptcies, massive financial losses for shareholders, and loss of jobs by employees (78).

The negative consequences of being unethical is not confined only at the individual organization alone but has a far reaching effects. Worst case scenario, would be a total loss of trust and confidence in business system by the public. In the absence of public trust and confidence, businesses will be effectively stalled, leading to the whole system to imminent collapse and affecting many including stakeholders. This is because, according to S. Burn, "modern capital markets run on trust and integrity" (qtd. in. locum, Jackson, and Hellriegel 79). Without trust and integrity, the whole business system [1] will be running on empty. Meanwhile, William George, the former chairman and CEO of Medtronic, Inc., commented:

Our system of capitalism is built on investor trust - trust that corporate leaders and boards of directors will be good stewards of their investments and provide investors with fair return. There can be no doubt that leaders of these corporations, and possibly many more, have violated that trust. As a result, investors are losing confidence and withdrawing from the market. In the process, everyone is getting hurt, not just the perpetrators of the egregious acts." (qtd. in. Slocum, Jackson, and Hellriegel 79)

While lacking in ethics is damaging, advocating ethics in one's organization is advantageous. Drucker contended that "it is typical of the most successful and the most durable institutions that they induce in their members an intellectual and moral growth beyond a man's original capacities" (The Corporation 28). By being ethical, a business organization could achieve stronger financial performance, easier access to fund and investment, greater sales, brand image, and reputation, stronger competitive position; greater staff loyalty and commitment, less vulnerability to activist pressure and boycotts and fewer legal backlash (Abramov and Johnson x; R.Chun 269-284; C.C.Vershoor 15-18),

Given the influence of ethics in making or braking an organization, how then can a CEO of a corporation effectively promote the importance of good values and ethical conduct to his/her organization? Or, to all its stakeholders for that matter.

The Concept Ethics and Good Value

Ethics, in general, means "a set of values, principles, and rules that define right and wrong conduct" (Slocum, Jackson, and Hellriegel 80). The concept of ethics, however, takes a greater meaning which according to Leung, is about making ethical decisions that "encompasses a through (and objective) examination of principles, values, duties and norms, the consideration of available choices or alternatives in order to make the right decision and strength of character to act in accordance with the decision" (5). This only shows how complex an ethical decision making process can be, given the wide spectrum of considerations that has to be taken into account.

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To facilitate ethical decision making, one must first decide what is ethical and on what criterion it is based on (Dellportas 28). Hence, it is imperative for a CEO of a company to carefully choose the most suitable criterion, especially since every decision made will have impacts on the stakeholders. In order to provide the criterion on which ethical decisions are based on, several theories with different criteria for ethical reasoning and judgments are available. Some of the prominent ethics theories are the Utilitarianism, Universalism, Rights and Justice.

The Theory of Utilitarianism

The father of utilitarian ethics, Jeremy Bentham (1784-1832) defined utilitarianism as the 'greatest happiness principle' which, when applied to decisions making, means making ones that encourage human welfare through maximizing good consequences of actions over bad consequences (Dellaportas 30). Spencer and Lehman elaborated that "the major premise of this theory is that in all situations, one ought to do that which provides greatest balance of good over harm for everyone" (7). The utilitarianism logical reasoning of good over bad, bodes well with man's intuitive criteria for deciding and resolving moral dilemmas (Dellaportas 30). As such, utilitarian concept widely appeals to government policy makers, economist and business professionals (Weiss 106). In a corporation set up, by applying the utilitarian theory, a CEO is able to analyze the cost and benefits of each alternative action of the firm and how it impacted on all organizational stakeholders before selecting the one that imposes the least cost and most benefits to the greatest number of people.

The Stakeholders

Freeman broadly defined organizational stakeholders as "any individual or group who benefits from or harmed by, or whose rights are affected (e.g., violated, restricted or ignored) by an organization's actions" (qtd. in Werhane and Freeman 7) . Weiss categorized these stakeholders into two general groups, that is, the primary group which includes at least the owners, employees, customers and suppliers and the secondary group could include the media, consumers, lobbyist, courts, governments, competitors, the public, and society (43). Between the two groups of stakeholders however, meeting the reasonable expectations of the primary stakeholders effectively and efficiently can improve business performance, profits, and economic progress (Leung 9). It is through fulfilling the expectations of the stakeholders, that a company earns the trust of the stakeholders and thus, develops it credibility. Leung classified some of the expectations that various stakeholders have on a company as follows (9):

Stakeholders

Expectations of The Company

Owners, Shareholders and fund providers

Ongoing viability.

Reputation and credibility.

Integrity of information and returns.

Accountability.

Other public stakeholders, employees and individuals etc.

Product safety and product quality.

Socially responsible activities.

Fairness and equity.

Honesty and respect for the public interest.

Professional and other developments.

Open communications.

Fair compensation.

Promoting the Importance of Ethics to Stakeholders

In promoting the importance of ethics to the various stakeholders, a CEO of a corporation should play the role of ethics advocate. As an advocate, a CEO should be committed in fulfilling the ethical expectations that the stakeholders have on the corporation. By doing so, the CEO could get further 'buy in' of the idea of being ethical from all parties.

Owners/Shareholders

In relationship with the owners/shareholders, a CEO of a corporation can promote the importance of ethics to the owners/shareholders by assuming some responsibilities and committing some ethical conducts. For example, the CEO could ensure the owners/shareholders that:

In carrying out his/her fiduciary duties, he/she would aim at maximizing the wealth of the shareholders, instead of acting on self interest to maximize own utility;

Financial integrity would be guarded jealously and adhere to strict financial ethics. Using Best Buy Canada as an example, in its Finance Code of Ethics, among other things, it guarantees full and fair disclosure of all financial information that are important in helping shareholders making investment decisions, maintaining complete and accurate financial records and assuring the integrity of all company books, records and accounting practices;

The company assets - tangible and intangible - are protected against theft and misuse (waste and abuse) caused by either internal or external sources. For example, Best Buy's Code of Business Ethics stipulates that assets should be handled with care, respect and guarded and only to be used to conduct company business or for purposes authorized by the management;

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The employees of the corporation will act in the interest of the company and avoid any conflict of interest. Shell, for example has adopted the Statement General Business Principles that amongst other things, stipulates that all persons must avoid conflicts of interest between their private financial activities and their part in the conduct of company business.

Employees

In relationship with the employees, a CEO of a corporation can promote the importance of ethics to the employees by assuming some responsibilities and committing some ethical conducts. For example, the CEO could ensure the employees that:

The company take serious concern about creating an equal employment opportunity and prevent discriminatory conducts and policies;

The company practices fair wages. In this aspect, the company could ensures that laws governing the wages are adhered to, fair wages between gender and comparable wages to the rest in the industry; and

The company makes it an utmost importance that safe working environment is created by amongst other, providing safe workplace, harassment and violent free.

Customers

In relationship with the customers, a CEO of a corporation can promote the importance of ethics to the customers by assuming some responsibilities and committing some ethical conducts. For example, the CEO could ensure the customers that:

The company provides only quality goods and services that give the customers value for money for their purchases;

The company are sensitive to the customer's privacy. Using Mattel as an example, the world leading toy maker, makes every effort to assure its customers that their privacy is well guarded especially when using the internet-based marketing tools. For instance, on its Barbie.com website, Mattel provides a full explanation on how it collects information, precautions it takes to protect information, etc; and

The company or its contractors make product's safety its priority. Mattel, for example makes only safe products. It's core brand Fisher-Price which target markets are, the most vulnerable group (infants and toddlers), has been able to earn the trust of parents due to their safe products. Mattel instituted a code of conduct called the "Global Manufacturing principles (GMP)", to ensures that, among others, its business partners must ensure high standard for product safety and quality, adhering to practices that meet Mattel's own safety standards. This is to make sure that their products will not be harmful to the children.

Suppliers

In relationship with the suppliers, a CEO of a corporation can promote the importance of ethics to the suppliers by assuming some responsibilities and committing some ethical conducts. For example, the CEO could ensure the suppliers that:

The corporation's policy pertaining suppliers is aimed at treating the suppliers with respect. This is done by ensuring that business dealings benefit both sides; and

The tendering and assessment process is done in an open and transparent manner, whereby suppliers will be in the know as to how they are selected and the criterion used.

Alternatively, the CEO could also promote the importance of ethics to its suppliers by imposing on them some of the company's expectations. The CEO could insist that:

All suppliers adhere rigorously to all relevant legislation in their operations, such as the ones on employment, health, safety and environmental. One way to ensure this, is through having a Code of Vendor Conducts. Gap Inc., for example, has a Code of Vendor Conduct that applies to all factories that produce goods for or any of its subsidiaries, divisions, affiliates or agents. While recognizing the different legal and cultural environments in which factories operate throughout the world, the Code sets forth the basic requirements that all factories must meet in order to do business with Gap Inc.; and

The suppliers commits towards practicing best-practice standards, especially in the sensitive areas of human rights, health, safety and environment. For example, Mattel's GMP requires all Mattel-owned and contracted manufacturing facilities to, among other things, favor business partners who are committed to ethical standards that are comparable with Mattel's.

Implementing Ethics in The Corporation

From the many examples in the corporate world, it is evident that a successful corporation aimed and achieved in creating healthy ethical climate. According to Dellaportas, the ethical climate which is also known as the corporate culture, represents "a shared set of norms, values and practices about appropriate behavior in the workplace" (330). To achieve exemplary ethical climate/corporate culture, demands high commitment - planning, organizing, leading and controlling - on part of the senior management of a corporation, especially the CEO in setting up and executing the Code of Ethics. The steps in creating and implementing the Code that can be considered by a CEO are as follows:

Step 1: Identify and Define Core Values of The Corporation

Before anything else, a corporation needs to have its set of values and according to Abramov and Johnson, a responsible management defines four or five values as guidance for all employees and agents in decision makings (103-104). These core values, according to it, should be so fundamental to what the corporation visions itself to be that they will not be sacrificed for short-term gain.

Since corporations' visions and aspirations may differ from one another, therefore there is no one right set of values. For examples, the Royal Dutch/Shell, has three core values: honesty, integrity, and respect for people while Alcatel, has four values:customer focus, innovation, teamwork, and accountability. However, as a rule of thumb, the core values should "reflect the fundamental qualities that the enterprise wants to use to guide employee and agent decisions and activities, but they should not be so far removed from the reality of the enterprise that they are impossible to follow or that they breed cynicism." (Abramov and Johnson 103-104).

The process of identifying and defining core values should be one that engaged the stakeholders. This is because, by engaging the various stakeholders, the core values are more reflective of the Corporation and accepted by its members and other stakeholders. Abramov and Johnson, described some of the process of identifying and defining core values as:

Some enterprises arrive at their core values through a carefully crafted survey of their employees, including interviews and focus groups. Others establish advisory groups at various levels of the enterprise to work with a small working group to draft a set of values for further dialogue. A few enterprises survey all or most of their members plus many other stakeholders (103-104).

Mary Guy has identified ten core values that makes a benchmark for ethical decision making as caring, honesty, accountability, promise keeping, pursuit of excellence, loyalty, fairness, integrity, respect for others and responsible citizenship (qtd. in Dellaportas 101).

Step 2: Draw up 'Code of Ethics'

According to Abramov and Johnson, a Code of Ethics is a blueprint for developing a culture of values (311). The Code of Ethics, according to Werner, "will bring the company's core values to life as it translates them into specific commitments and expected behavior in relation to the organization's key stakeholder groups" (4).

The process for drawing up a code of ethics is as paramount as the code itself since it is an important step towards reinforcing the desired organizational culture. Hence, it should be one that has the utmost commitment of the management, engages the various stakeholders and taking into considerations the identified core values of the corporation. Engaging the stakeholders -internal and external- is vital as by doing so, will ensure that they will recognize Code as theirs, support it, and be willing to live by it.

As a final product, the Code must be clear and comprehensive enough for the employees/stakeholders. It should "embody both business standards (such as customer satisfaction, a high quality of products, safety, and employee rights) and values (such as mutual trust, respect, and honesty)" (Abramov and Jonson 311). Only then, will it able to act as guidance on all important ethical related matters.

Step 3: Embedding the Code

Upon successfully creating the Code, the CEO has to make sure that the Code is adopted by all parties concerned. The CEO should::

Be a role model by showing consistent commitment to the Codes. This is done through ensuring that the values and decisions of senior management always support the Codes (Dellaportas 332). The same expectation also applies to supervisors and line managers and that they should be reminded on a regular basis of this responsibility (Werner 5). The proper commitment shown by the senior management will enable employees to learn appropriate behavior from senior management leading by example, whereas when senior management shows inconsistent and inappropriate behaviors, employees might deem it as acceptable conducts (Dellportas 332).

Make sure that all employees are aware about the corporation's Code of Ethics and the conducts that are expected of them. Here, the CEO needs to have an effective communication program, both formal and informal. Formal communication includes " program announcements, company newsletters, new employee orientation, training programs, posters, annual and social responsibility report, speeches and meeting" (Abramov and Johnson 149), whereas informal communication includes "managers explaining how they arrived at a decision, experienced workers telling the newly hired how things really work, all forms of rumors and gossips." (Abramov and Johnson 149);

Provide all employees with relevant trainings. The trainings, at the minimum, should require that employees become familiar with the applicable laws and regulations, as well as with the enterprise's concerns on responsible business conducts and enhance the ethical awareness of the employees (Abramov and Johnson 156). Training modes could, amongst others be in lectures, presentations and case studies.

Should encourage employees to speak up if they have any concerns regarding ethical issues and standards. The Best Buy Canada, for example, details clearly the step by step actions to be taken by the employees, if they have any concerns regarding ethical issues and standards, in their Code of Business Ethics.

Appointing an 'ethics champion' - a person who keeps an eye on the corporation's ethical standards. As an ethics champion, the person "may check on the effectiveness of the ethics policy, discuss ethical issues and concerns with the directors and be a contact if an employee wishes to raise concerns or seek guidance outside of the management line." (Werner 5).

Adopt the carrot and the stick approach in ensuring compliance of the Codes. Employees of other stakeholder like suppliers are rewarded if they comply to the corporation's code. Rewards can be in the form of monetary incentives, promotions or securing long term business partnership. On the other hand, punishments are to be carried out on parties that are found to be non complying and the punishment can range from a simple show cause letter to dismissal or losing businesses with the corporation. Action against non compliance to the Code is so paramount as according to Dellaportas, "the absence of management actions against unethical behavior is a stronger approval of questionable acts than stated policies of acceptable behavior" (332).

Review and revise the Codes from time to time, in order to address any new issues and its relevance.

Conclusion

The importance of ethics to the business entities is evident. Scores of corporate scandals that has happened recently on prove that the need to be ethical is more pressing than ever. Nonetheless, it is easier to talk about ethics than to implement it in an organization, what more for a business entity like a corporation. This is because of, any conduct by a corporation has many impacts on various stakeholders, any often times conflict happens. Hence, the topic of ethics need to be handle with care.

To promote ethics in the Corporation, a CEO has to obtain the 'buy in' from the many stakeholders - internal or external - about the importance of ethics to them. Hence, CEO has to play the role of an ethics advocate. Advocating ethics simply means 'putting money where your mouth is', thus, a CEO, has to first ensure some degree of ethical commitments to the stakeholders. Implementing ethics in the Corporation is also crucial. It involves a process that requires a lot of reflections, thinking and visualizing. It starts with identifying the core values of the Corporation, to drawing up the Code of Ethics and lastly to the implementation of the Codes.

The survivability of a Corporation in the coming years will depend a lot on the ability of Corporation to maintain trust from the stakeholders. Thus, a CEO, being the captain of the Corporation must not and loose sight of ethics.