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3. Ethical Behavior in Corporate Culture

Businesses can either voluntarily develop appropriate

policies (of ethical behavior) or can be forced to do so bypublic opinion. When external pressure is the reason for

ethics programs, the adapted practices are not integrative:

the company can have memos, reminders and some un-

integrated policies. But if ethics planning comes from thetop management, the ethics practices are more likely to be

integrative: the company links rewards to managerial

behavior to reinforce ethical ideals, ethical behavior is

made a public relation tool. Sometimes businesses of such

category go beyond regulatory or even cultural limits to

become an ethically goodbusiness.

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3.1 Ethical Management and Management of Ethics

Ethical management: Acting ethically as a manager, by

doing the right thing. Unethical management or ethicalmisconduct has ended several promising careers; actions

of few individuals severely harmed and even destroyed

some businesses.

Management of ethics: managing activities that are

required of a firm or its employees to behave ethically;

managing the rules, procedures, policies and values

consistent with fairness and commitment in relation to

conditions at the workplace, external environment, racial

justice, human rights, and interests of the stakeholders

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3.2 The Role of Management in General

Internally, management of firms bind members

together through myriad rules, procedures, policiesand values that must be carefully managed.Effective organizational functioning depends ongaining the acceptance of rules, policies and otherguides and this acceptance requires a perception offairness and commitment.

Because of the complexity of economic, social,

global, natural, political, legal and governmentregulations and environment, the management mustdecide whether to adhere to constant ethicalprinciples or to adjust to domestic standards and

culture.

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3.2.1 The Role of Management in General

Leading by example is the first step in fostering a culture ofethical behavior in the companies. Other methods: creating acommon interest by favorable corporate culture, setting highstandards, norms, framing attitudes for acceptable behavior,making written code of ethics to be abided by at all levels fromtop to bottom, deciding the policies for recruiting, selecting,

training, induction, promotion, monetary/non-monetarymotivation, remuneration and retention of employees.

Managers set standards for determining the difference betweengood or bad, right or wrong, fair or unfair, play an importantrole in establishing its ethical tone and they should not behave

as if the only thing that matters is profit and the employees arelikely to act in a like manner.

managers play an active role in creating a working environmentwhere employees are encouraged and rewarded for acting in anethical manner.

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3.2.2 The Role of Management in General

Managers who want employees to behave ethically must exhibit

ethical decision making practices themselves. Managers have toremember that leading by example is the first step in fostering aculture of ethical behavior in their companies. No matter what theformal policies say or what they are told to do, if employees seemanagers behaving unethically, they will believe that the company

wants them to act in a like manner.Policy makers, as well as the managers and (senior) levelemployees of a company need to ask these questions:

How ethically vulnerable is the company?

What are the core values and guiding principles of thecompany?

Is the company committed to living and exhibiting the corevalues in everything it does?

The answers to these questions will define the state of ethics

in the business.

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3.3 The Role of Leadership Leadership in business must set the standard and walk the

talk when it comes time to ethical behavior. A leader must

constantly keep his or her actions above reproach. And iscommitted to high standards.

Knowing what is right is very important to personal andbusiness ethics. Doing what is right is absolutely critical to

personal and business ethics. A strong unwaveringcommitment to core values and guiding principles of acompany or organization will lead to the right ethicaldecisions and actions.

The best way to promote ethical behavior is by setting agood personal example. Teaching an employee ethics is notalways effective.

People at the top of an organization are expected to sharethe burden of cost reductions and belt-tightening during

difficult times.

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3.3.1 Expectations from an Ethical Manager

Managers have to remember that leading by example is the

first step in fostering a culture of ethical behavior in thecompanies. However the other methods can be

Creating a common interest by favorable corporateculture;

Setting high standards, norms, framing attitudes foracceptable behavior;

Making written code of ethics to be abided by at all levelsfrom top to bottom;

Deciding the policies for recruiting, selecting, training,induction, promotion; and

Monetary/non-monetary motivation, remuneration andretention of employees.

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3.4: Ethical Dilemmas

One of the most important activity in managing ethics is the

resolving of ethical dilemmas emanating from Transfer of operations of a company from one country to

another (when cultures differ), face problems of a hostcountry where industries are relocated to avoid problemsin the home country;

Transfer pricing (setting prices of goods and services soldby one member of a corporate family to another, such asfrom a parent to its subsidiary in a foreign country(because of difference in taxation);

Transfer of technology (should a country buy thetechnology even if it has no use of it?)

Fixation of wages by a multinational company toemployees of the host country (how to establish parity?)

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3.5 How to Solve Ethical Dilemma When faced with ethical dilemmas, its important to consider

outcomes of the decision-making process. One way of dealingethical dilemmas is by using the four way test to evaluatedecisions. This test involves asking four questions:

Is my decision a truthful one?

Is my decision fair to everyone affected?

Will it build goodwill for the organization?

Is the decision beneficial to all parties who have a vestedinterest in the outcome?

When these four questions can truthfully be answered with ayes, it is likely that the decision is an ethical one.

Another way of making sure decisions are truly ethical is byusing the publicity test. Ask yourself how you would feel ifyour actions were published in your hometown newspaper. Ifyou would be comfortable: chances are that your decision isan ethical one. But if you do not want others to learn about

your actions, you probably need to rethink your decision.

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3.6 Understanding Whether a Company isEthical in Conducting Business

In the increasingly conscience-focused marketplaces of the21st century, the demand for more ethical businessprocesses and actions is increasing; more pressure isapplied on industry to improve business ethics throughnew public initiatives and laws. Businesses can often

attain short-term gains by acting in an unethical fashion;but such behaviors tend to undermine the economy overtime.

In the end, it may be up to the public to make sure that a

company adheres to correct business ethics. If thecompany is making large amounts of money, they may notwish to pay too close attention to their ethical behavior.There are many companies that pride themselves in theircorrect business ethics, but in this competitive world, they

are becoming very few and far between.

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3.7: Strategies in Managing Ethics

6 significant strategies:

1. Commitment from top management

2. Having a Code of Ethics

3. Constituting Ethics Committees

4. Conducting Ethics Training Programs5. Having a whistle blowing system in place

6. Enacting legislation outlawing unethical

conduct

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3.8 Ethics Policies

Many companies formulate internal ethics policies, which can be simple andgeneralized (called a corporate ethics statement), or they can be moredetailed, containing specific behavioral requirements (called corporate ethicscodes), generally meant to identify the company's expectations of workersand to offer guidance on handling some more common ethical problems.

An increasing number of companies also require employees to attendseminars regarding business conduct; some companies even require theiremployees to sign agreements stating that they will abide by the company's

rules of conduct. Many companies assess the environmental factors that can lead employees

to engage in unethical conduct.

Not everyone supports corporate poli cies that govern ethical conduct.Some claim that ethical problems are better dealt with by depending uponemployees to use their own judgment.

Others believe that corporate ethics policies are primari ly rooted inuti l i tarian concerns,and that they are mainly to limit the company's legalliability, or to curry public favor by giving the appearance of being a goodcorporate 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 problemwould not have arisen if the employee had only followed the code properly.

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3.9 Factor for Success of an Ethics Policy

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 routineinspections for compliance and improvement.

Backed up by clearly stated consequences in thecase of disobedience.

Remain neutral and nonsexist.

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3.10: Ethics Committees, Ethics Training,

Whistle-blowing and Laws

Companies can form ethics committees,sometimes high level ones, for advise on ethicalissues

All large companies in developed countries nowprovide training in ethics for their employees

Whistle-blowing enables an employee to tip offthe top management about misdeeds of any

person; protect the identity of the caller Laws represent a societys attempt to formalize or

to reduce to written rules, ethical principles; everycountry does have its own laws

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3.11 Standardizing Ethical Behavior: Guideline

and Code of Ethics

Ethics Guideline

There are no global governance mechanisms to regulate anddiscipline companies that violate ethical standards. But businessescan and should create an environment of ethical practices and themotivations of businesses to have guidelines on how to create suchethics are:

Guidelines created by companies are less problematic than thosecreated by the government

Such guidelines stimulate firms to operate according to the sameprinciples (contributing to development of a level playing field for

all organizations)Ethical conduct is needed in an increasingly interdependent world

Norms of ethics reduce operating uncertainties, and

The guidelines lead companies to beyond simply doing the right

things.

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3.12 Company Code of Ethics Ethical code/company code of ethics/code of professional and social

responsibility may dispense with difficult issues of what behavior is"ethical". The Company Code of Ethics typically explainsthewhy of a global ethic. Large multinationals introduced formal codeof ethics in early 1990s.

Some codes of ethics are often social issues, some set out generalprinciples about an organization's beliefs on matters such as quality,

employees or the environment, others set out the procedures to beused in specific ethical situations - such as conflicts of interest or theacceptance of gifts, and delineate remedies if there is any violation.

Code of ethics comprises a set of principles developed in advanceand not of the choices made reflexively at the moment of an

ethical lapse. The code defines the standards of right and wrong forthe company who develops it, helps it resist temptation and becomesthe basis for making ethically sensitive decisions.

Ethical Codes are often not part of any more general theory of ethicsbut accepted as pragmatic necessities. They are distinct from moral

codes that may apply to the culture, education, and religion of awhole society.

3 12 1 C C d f Ethi i th itt

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3.12.1. Company Code of Ethics is more than a writtendocument; provides statement (sanctions and rewards) on

Important Variables

1. Fundamental honesty and

adherence to law

9. Trading in securities and use

of inside information2. Product safety and quality,

workplace health and safetyprocedure

10. Acquiring and usinginformation about others

3. Conflicts of interest 11. Payments to obtain business

4. Employment practices 12.Environment protection

5. Fair practices in selling andmarketing and selling/providingservices

13. Internet and e-commerceactivities

6. Financial reporting 14. Intellectual property or useof proprietary information7. Supplier relationships

8. Pricing, billing, and contracting 15. Security and political

activities

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3.13 The Content of the Company Code of Ethics

Company code of ethics usually covers thefollowing areas:

Contractsconflict of interest, bribery, securityof proprietary information, receiving gifts

Legally and generally accepted standardsworkplace safety, political activities, sexual

harassment etc Othersnatural environment, child labor,

human rights.

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3 15 Eff i d B fi f C d f E hi

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3.15 Effectiveness and Benefits of Code of Ethics

Effectiveness of Code of Ethics depends on the extent towhich management supports them with sanctions andrewards. Violations of a private organization's code ofethics usually can subject the violator to the organization'sremedies (in an employment context, this can meantermination of employment; in a membership context, thiscan mean expulsion). Of course, certain acts that constitute

a violation of a code of ethics may also violate a law orregulation and can be punished by the appropriategovernmental organ.

Benefits of codes of ethics Code of ethics may ensure success and even if it is flawed, it may

prevent failures If codes exist, mangers do not guide the firms into ethical morassor individuals will not rely on conflicting personal ethics whenacting on behalf of the firm.

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3.15.1 Code of Ethics

Some Key Points of a Company Code of Ethics

Respect basic human rights and freedom

Minimize any negative impact on local policies

Maintain high standards of local social involvement

Transfer technology and promote R & D

Protect the environment

Ensure consumer protection

Follow fair employment practices including more

employment opportunities for local people and security

of their jobs

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3.16 Problems with the Code of EthicsGeneral problems having relevance more to the national

context:

It is important to be cautious that the Code of Ethics Is not converted into a public relation tool rather than its

being a behavioral guide

Does not lack specific content (a perennial problem with

documents of such type) or ignore rights of keystakeholders in their dealings with other organizations

Integrates code compliance very well into theorganizational procedure

Does not fail because of not providing a framework forcommunication with external communities about thesuccess or failures of the company in achieving the Codesobjectives

Can overcome difficulties, to the extent possible, in beingpart of an integrated process of decision making

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3.17 Problems with the Code of EthicsProblems having relevance to international context

Global rules are likely to emerge from a negotiation processbut they are unlikely to reflect values and habits of allcultures

The rules are developed by firms from westernizedcountries and reflect western rules and it is not easy to

reconcile them with patterns in most participating nationsand sustain them in environment of these nations, especiallythe developing ones.

Global ethics is in fact an end and not a beginning point butthe practice of global ethics is not static: when conditions

change, the organizations need to change the approach andattitudes how to sustain the rules in such a dynamicenvironment?

Global ethics may serve to depress innovation (since somewill hesitate to act in absence of clear guidelines)how to

overcome the problem, for example, in medical science?

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3.18 Important Activities in Implementation

of Code of Ethics

Communicate with employees so that theyunderstand what behaviors are expected andwhy; include notice of sanctions for ethicalviolations.

Monitor ethical behavior; include periodicalinspections or progress reports.

Link ethics to rewards; integrate ethics code

into everyday activities.

Audit results for feed-through to next stepprocesses.