Business Ethics

Take Home Assignment

27/1/2013

Abhishek Minz | 0010/49

1. Introduction
Efforts to institutionalize and incorporate ethics into business to enhance ethical employee decision making and behavior are not recent phenomena. According to James Weber, who coined the phrase institutionalization of ethics into business, institutionalizing ethics means integrating ethics into all day decision making and work practices for all employees. For the last decade, the increasing effects of factors such as globalization, information technology, world business competitiveness, and limited natural resources have changed people's views of how a good company is dened. In the past, nancial gures were the major factor in dening a good company. In recent years, ethics, quality of work life (QWL) and job satisfaction are increasingly being identied as progressive indicators related to the function and sustainability of business organizations. The rising complexity of the competitive business world and the cumbersome process of implementing effective social laws make ethics an important strategic factor in day to day business activities.

1.1 Implicit and Explicit Ethics

Due to increasing ethical problems in recent years, many business organizations have established ethics programs to help improve ethical behavior and/or to help prevent ethical problems among their employees. According to widely held research, there are two categories of ethics programs in organizations either explicitly created or implicitly inherited. Based on his research, the explicit components include codes of ethics, policy manuals, ethics seminars, internal control systems, and ethics staff. The implicit components include corporate culture, incentive systems, valued behaviors, promotion policies, and management behavior.

2. How to institutionalize ethics?

The first step in institutionalizing ethics is to make ethics a priority. Some of the basic steps that can be followed are: a) Remove Disincentives: Many organizations follow activities and practices that inhibit the fulfillment of articulated ethical guidelines. These include: Rewards for quantity over quality: In many positions the responsibility for quality and quantity rest with the same person. If the financial and recognition rewards are all based on quantity, quality will be sacrificed. This system is a disincentive to maintain quality. Both the structure and the rewards must be changed. Bottom line pressure: The continuous aim of making profits at any cost makes taking ethical considerations redundant as they are most likely to be in conflict. Open door policies, closed door practices: By announcing an open door policy and not adhering to it, management undercuts the trust of workers in its commitment to working with employees to resolve conflicts and problems. Management also loses credibility in honesty and follow-through. Punishment for reporting policy violations: Several managers have reported internal policy violations to their bosses only to be told not to create a nuisance or not to discuss the

matter further as it may make the department look bad, which may reflect poorly on the boss himself/herself. So employees learn not to enforce ethical standards by believing that such standards are not very important to their managers. Uncertainty about Ethical Standards: Not knowing the ethical policy is certainly a disincentive to upholding it. Management should not leave the achievement of ethical behavior to the guesswork of the employees. As with all goals and objectives in organizational life, these must be clearly articulated and communicated. Patterns of deception throughout management: Only honest treatment of employees and managers will convey the commitment to ethical practices in all aspects of the organizations operations. Dishonesty and deception in internal relationships will set negative role models and encourage such deception with other stakeholders in the organization. b) Build systems and positive rewards to support ethical action: This can be achieved thorugh the following ways: Communication of Ethical Policies: Ethical goals and policies should not be seen as edicts but as means for accomplishing the shared ethical goals of the organizational members. Corporate Policies: A company should establish guidelines for ethical behavior and identify the proper course of action in situations that might have several possible outcomes. Train employees on the policies, and provide periodic updates when situations arise that suggest a policy might be unclear or needs to be reinforced. Ethics Training: Establish annual ethics training for employees to ensure they understand the corporate ethics policies and know how to respond if presented with a situation that might compromise the company. Scenario-based training involving employees, suppliers, management and others in hypothetical situations is an excellent way to learn how to respond ethically to situations where there are several possible outcomes. Give employees a printed or downloadable ethics manual for reference during the training and throughout the year. Ombudsman: Even with clearly defined ethics policies, employees may face situations involving unethical behavior but dont want to get a co-worker or supervisor in trouble. Or an employee might be afraid that reporting unethical behavior could jeopardize his job. Corporations can reinforce ethics policies and encourage employees to abide by ethical standards by providing an ombudsman to discuss sensitive situations with them, advise them on the proper course of action and protect them from retaliation. Industry Recognition: Look for opportunities for recognition among industry peers as an ethical business. Having a designation as an ethical business can attract employees and investors and earn positive press for your company. In turn, it helps strengthen the corporate image, build equity in the brand and position the company favorably in the marketplace.

3. Examples of institutionalizing ethics

A well known company that has become famous for its institutionalization of ethics is Johnson & Johnson. In its beginnings, when it specialized in baby powder and bandage products. Johnson &

Johnson was a highly centralized organization. Now it is both highly diversified operating more than 160 businesses in over 50 countries, and highly decentralized. The process of decentralization started under a son of one of the companys three founders, General Robert Wood Johnson, who took over in 1932. Today each business has a president or managing director who reports to a company group chairperson but who generally manages his or her particular company with a fair amount of independence. Because Johnson & Johnsons decentralized structure depends so heavily on individual autonomy and decision making, the company established a Credo in 1943, not only to ensure its essential dedication to product quality, but also to encourage personal commitment to the goals of a loosely structured organization. Former Chairman James Burke believes that the Credo is a unifying factor among employees. During the Tylenol crisis, when seven people died after taking Extra-Strength Tylenol capsules that had been tampered with Johnson & Johnson relied on the credo to eventually reintroduce the product and regain the public trust.

4. Ethics and Stakeholders

Business ethics embodies values, norms, and expectations that reflect a concern of major stakeholders, including consumers, employees, shareholders, suppliers, competitors, and the community. When a business also cares about the well-being of stakeholders, it earns trust and cooperation that ultimately reduce costs and increase productivity. Only if firms make ethical concerns a part of their foundation (institutionalization of ethics, in other words) and incorporate ethics in their business strategy can social responsibility as a concept be embedded in daily decision making. On the other hand, the stakeholder model places the board of directors in the central position to balance the interests and conflicts of the various constituencies. Institutionalization of ethics aligns the managements and the stakeholders interests which help in making decisions which are morally justifiable.