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S Institute of Technology Department of MBA

Term Paper on Ethical Behaviour in Organisations

Submitted To: Mrs Priyanka Sharma Professor of Management Department of MBA P.E.S Institute of Technology Bangalore

Submitted By: Sridhar Reddy. M I Semester MBA B Roll No: 21

Defining Ethical Behaviour: Ethics is a philosophical term derived from the Greek word "ethos" meaning character or custom (Sims, 1992). Ethical behaviour is behaviour that is morally accepted as good and right, as opposed to bad and wrong (Wood, Zeffane, Fromholtz & Fitzgerald, 2006). An ethical dilemma requires a person to make a choice between competing sets of principles based on how morally good and right as opposed to how bad and wrong they are (Wood et al., 2006). While striving to always do right, with this paradigm sound ethical conduct will likely become second nature in todays world (Zazaian, 2006).

Ethical Behaviour in Todays Modern Organizations: Philosopher and theologian Paul Tillich once said: Ethics is not a subject, its a life put to the test in a thousand daily moments (Lagan, 2006, pg.72). This wisdom is relevant to the modern organizations of today that are challenged in every way to uphold high ethical and moral standards which are demanded by the public for the betterment of society (Kranacher, 2006). Organizations have established codes of conduct to guide their employees regarding their ethical responsibilities while trying to minimize unethical behaviour and solve ethical dilemmas appropriately (Kranacher, 2006). Unethical behaviours such as lying to important clients and giving insufficient or inaccurate information to shareholders can result in misinformed strategic decisions and problems for organizations (Collins, 2006). One only has to look and ponder upon the fate of the large corporations HIH Insurance and One Tel, whom both suffered collapses due to their unethical decisions (Wood et al., 2006).

Ethical Behaviour Policies And Practices: Why ethical behaviour policies and practices are needed in an organization? Ethical managerial behaviour in organizations conforms to the law and the broader moral code that is common to society as a whole.

The following definitions from the Oxford Dictionary were used in the wording of the Definition of ethical behaviour: "Dignity" - true worth, excellence; high rank or estimation "Diversity" - being unlike in nature or qualities; different kind; variety "Equity" - fairness; recourse to principles of justice to correct or supplement law; System of justice supplementing or prevailing over common and statute law "Fairness" - fair = just, unbiased, equitable, legitimate, in accordance with rules "Honesty" - truthfulness; honest = fair and righteous in speech and act, not lying, Cheating or stealing; sincere; showing righteousness; "Respect" - as noun: respect of persons = partiality or favour shown esp. to the Powerful; heed or regard to; as verb: pay heed to; regard with deference, esteem, or Honour; avoid degrading or insulting or injuring or interfering with or interrupting, treat With consideration, spare, refrain from offending or corrupting or tempting "Right(s)" - justification, fair claim, being entitled to privilege or immunity, thing one is Entitled to; authority to act in specified way

The Challenge of Ethical Behaviour in Organizations: The imperatives of day-to-day organizational performance are so compelling that there is little time or inclination to divert attention to the moral content of organizational decisionmaking. Morality appears to be so esoteric and qualitative in nature that it lacks substantive relation to objective and quantitative performance. An effective organizational culture should encourage ethical behaviour and discourage unethical behaviour. Admittedly, ethical behaviour may cost the organization. Even though ethical problems in organizations continue to greatly concern society, organizations and individuals, the potential impact that organizational culture can have on ethical behaviour has not really been explored. What is

needed in today's complicated times is for more organizations to step forward and operate with more positive and ethical cultures. It has often been said that the only constant in life is change, and nowhere is this truer than in the workplace. As one recent survey concluded, "Over the past decade, the U.S. corporation has been battered by foreign competition, its own out-of-date technology and out-of-touch management and, more recently a flood of mergers and acquisitions. The result has been widespread streamlining of the white-collar ranks and recognition that the old way of doing business is no longer possible or desirable" (U.S. News & World Report, 1989, p. 42). As the twenty-first century approaches, companies face a variety of changes and challenges that will have a profound impact on organizational dynamics and performance. In many ways, these changes will decide who will survive and prosper into the next century and who will not. Among these challenges are the following: (1) The challenge of international competition. (2) The challenge of new technologies. (3) The challenge of increased quality. (4) The challenge of employee motivation and commitment. (5) The challenge of managing a diverse workforce. (6) The challenge of ethical behaviour. While these challenges must all be met by organizations and managers concerned about survival and competitiveness in the future, this paper will focus on the challenge of ethical behaviour. More specifically, this paper will (1) Discuss some reasons' unethical behaviour occurs in organizations, (2) Highlight the importance of organizational culture in establishing an ethical climate within the organization, and finally, (3) Present some suggestions for creating and maintaining an ethically-oriented culture.

General Business Ethics: This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated. Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept shareholder concept. Ethical issues concerning relations between different companies: e.g. hostile take-overs, industrial espionage. Leadership issues: corporate governance. Political contributions made by corporations. Law reform, such as the ethical debate over introducing a crime of corporate manslaughter. The misuse of corporate ethics policies as marketing instruments.

International Business Ethics: While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include: The search for universal values as a basis for international commercial behaviour.

Comparison of business ethical traditions in different countries.

Comparison of business ethical traditions from various religious perspectives.

Ethical issues arising out of international business transactions; e.g. bio prospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.

Issues such as globalization and cultural imperialism.

Varying global standards - e.g. the use of child labour.

The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries.

The permissibility of international commerce with pariah states.

Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.

Corporate Ethics Policies: As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioural requirements (typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters. An increasing number of companies also require employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct. Many companies are assessing the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may call for unethical behaviour.

Lying has become expected in fields such as trading. An example of this is the issues surrounding the unethical actions of the Saloman Brothers. Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment. Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favour by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly. Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool. To be successful, most ethicists would suggest that an ethics policy should be: Given the unequivocal support of top management, by both word and example.

Explained in writing and orally, with periodic reinforcement.

Doable....something employees can both understand and perform.

Monitored by top management, with routine inspections for compliance and improvement.

Backed up by clearly stated consequences in the case of disobedience.

Remain neutral and non-sexist.

Unethical Behaviour: Why Does it Occur in Organizations? The potential for individuals and organizations to behave unethically is limitless. Unfortunately, this potential is too frequently realized. Consider, for example, how greed overtook concerns about human welfare when the Manville Corporation suppressed evidence

that asbestos inhalation was killing its employees, or when Ford failed to correct a known defect that made its Pinto vulnerable to gas tank explosions following low speed rear-end collisions (Bucholz, I 989). Companies that dump dangerous medical waste materials into our rivers and oceans also appear to favour their own interests over public safety and welfare. Although these examples are better known than many others, they do not appear to be unusual. In fact, the story they tell may be far more typical than we would like, as one expert estimates that about two-thirds of the 500 largest American corporations have been involved in one form of illegal behaviour or another (Gellerman, 1986). Unfortunately, unethical organizational practices are embarrassingly commonplace. It is easy to define such practices as dumping polluted chemical wastes into rivers, insider trading on Wall Street, overcharging the government for Medicaid services, and institutions like Stanford University inappropriately using taxpayer money to buy a yacht or to enlarge their President's bed in his home as morally wrong. Yet these and many other unethical practices go on almost routinely in many organizations. Why is this so? In other words, what accounts for the unethical actions of people in organizations, more specifically, why do people commit those unethical actions in which individuals knew or should have known that the organization was committing an unethical act? An example recently provided by Baucus and Near (1991) helps to illustrate this distinction. Recently, a federal court judge found Allegheny Bottling, a Pepsi-Cola bottling franchise, guilty of price fixing. The firm had ended years of cola wars by setting prices with its major competitor, Mid-Atlantic Coca-Cola Bottling (New York Times, 1988). Since evidence showed most executives in the firm knew of the illegal price-fixing scheme, the court not only fined Allegheny $1 million but also sentenced it to three years in prison--a sentence that was suspended since a firm cannot be imprisoned. However, the unusual penalty allowed the judge to place the firm on probation and significantly restrict its operations. In another case, Harris Corporation pleaded no contest to charges that it participated in a kickback scheme involving a defense department loan to the Philippines (Wall Street Journal, 1989). Although this plea cost the firm $500,000 in fines and civil claims, Harris's chief executive said the firm and its employees were not guilty of criminal conduct; he maintained that top managers pleaded no contest because the costs associated with litigation would have been greater than the fines, and litigation would have diverted management attention from firm operations.

Although both cases appear to be instances of illegal corporate behavior, there is an important distinction between them. In the first case, Allegheny's executives knew or should have known the firm's activities were illegal; price fixing is a clear violation of antitrust law. Further, the courts ruled that evidence indicated the firm had engaged in the illegal act. In contrast, it is not clear that Harris Corporations' managers committed an illegal act. Some areas of the law are very ambiguous, including the area relevant to this case, the Foreign Corrupt Practices Act, and managers may not at times know what it legal or illegal; thus, a firm may inadvertently engage in behaviour that is later defined as illegal or unethical (Baucus and Near, 1991).

The Influence of Ethics on Decision Making: Ethics can have a big influence on decision-making in the workplace. Ethical behaviour in the workplace is behaviour that is accepted as morally "right," rather than "wrong." (Organizational Behaviour). Unethical behaviour can be considered illegal, or merely against the norms of society. Employees encounter ethical decisions every day in the workplace, whether they realize it or not. The stock boy must make a decision on whether it is right to steal merchandise. The auto mechanic must make a decision on what is a fair price to charge a gullible customer. The CEO must decide how to use all the power he or she possesses. There are many different thinking about ethical behaviour, and different people will judge the same situation differently depending on their ethical thought process. The utilitarian view of ethical thinking states that ethical behaviour is when the greatest good is done for the greatest number of people. This usually means, in a business sense, that one department, program, or factory must be shut down to help the company function more efficiently or be more financially stable. The individualism view is just that, decisions must be based on what is best for the individual's interests in the long run. The moral rights view suggests that the basic rights of citizens should be respected. The rights of fair treatment, privacy, and freedom of speech are thought of as such moral rights. The justice view emphasizes fair and impartial treatment for all involved, whether it is upper management, employees or customers (Organizational Behaviour).

In the workplace, people base one or all of their decisions on these different views. Some helpful questions to ask when deciding what to do in a situation are: Is it right? Is it legal? Is it beneficial? (Organizational Behaviour). Enrolling students in online degree programs presents many ethical decisions. The prospective student often knows nothing.

Promoting an Ethical Climate- Some Suggestions and Strategies: Recent literature has suggested several strategies for promoting ethical behaviour in organizations (Adler and Bird, 1988; Burns, 1987; Harrington, 1991; Raelin, 1987; Stead etal., 1990). First, chief executives should encourage ethical consciousness in their organizations from the top down showing the support and care about ethical practices. Second, formal processes should be used to support and reinforce ethical behaviour. For example, internal regulation may involve the use of codes of corporate ethics, and the availability of appeals processes. Finally, it is recommended that the philosophies of top managers as well as immediate supervisors focus on the institutionalization of ethical norms and practices that are incorporated into all organizational levels.

(1) Recognize and clarify the dilemma.

(2) Get all the possible facts.

(3) List your options--all of them.

(4) Test each option by asking: "Is it legal? Is it right? Is it beneficial?"

(5) Make your decision.

(6) Double check your decision by asking: "How would I feel if my family found out about this? How would I feel if my decision was printed in the local newspaper?"

(7) Take action.

An effective organizational culture should encourage ethical behaviour and discourage unethical behaviour. Admittedly, ethical behaviour may "cost" the organization. An example might be the loss of sales when a multinational firm refuses to pay a bribe to secure business in a particular country. Certainly, individuals might be reinforced for behaving unethically (particularly if they do not get caught). In a similar fashion, an organization might seem to gain from unethical actions. For example, a purchasing agent for a large corporation might be bribed to purchase all needed office supplies from a particular supplier. However, such gains are often short-term rather than long-term in nature. In the long run, an organization cannot operate if its prevailing culture and values are not congruent with those of society. This is just as true as the observation that, in the long run, an organization cannot survive unless it produces goods and services that society wants and needs. Thus an organizational culture that promotes ethical behaviour is not only more compatible with prevailing cultural values, but, in fact, makes good sense.

Conclusion: In conclusion, even though ethical problems in organizations continue to greatly concern society, organizations, and individuals, the potential impact that organizational culture can have on ethical behaviour has not really been explored (Hellreigel et al., 1989). The challenge of ethical behaviour must be met by organizations if they are truly concerned about survival and competitiveness. What is needed in today's complicated times is for more organizations to step forward and operate with strong, positive, and ethical cultures. Organizations have to ensure that their employees know how to deal with ethical issues in their everyday work lives. As a result, when the ethical climate is clear and positive, everyone will know what is expected of them when inevitable ethical dilemmas occur. This can give employees the confidence to be on the lookout for unethical behaviour and act with the understanding that what they are doing is considered correct and will be supported by top management and the entire organization.