Business Ethics in Zimbabwe Research Report

Prepared by Industrial Psychology Consultants (Pvt) Ltd (C) 2012 Page 1

Industrial Psychology Consultants (Pvt) Ltd

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Business Ethics, Who

Is Business Ethics?

A Research Report On Business

Ethics In Zimbabwe

September 2012

http://www.ipcconsultants.com/


Business Ethics, Who is

Ethics?

A Research Report On Business Ethics In Zimbabwe

September 2012


Contents Understanding the writings on the wall ........................................................................................... 4

Business Ethics In Zimbabwe, How Bad Is It? ................................................................................. 6

Managers As Role Models ................................................................................................................ 10

Make Whistleblowing Work For Your Company ......................................................................... 11

Rewarding for ‚A‛ Whilst Expecting ‚B‛: The Case of the Ford Pinto ..................................... 14

Concluding Observations ................................................................................................................. 16

Research Methodology ...................................................................................................................... 17


Understanding the writings on the wall

The Zimbabwean economy is undoubtedly recovering. An assessment of the various

macroeconomic indicators, GDP growth, current account, money supply and bank loan

advances – amongst others, suggests that there is growth, however sluggish. In a recent

report, the International Monetary Fund1 notes that a grave concern for the country is the

meagre inflows of Foreign Direct Investment vis-a-vis the prevailing growth rates.

Zimbabwe remains a high risk nation – which may be in part affecting FDI. Numerous

country risks have often been identified, an unstable political environment, lack of

substantive property rights, rising unemployment, increasing wage demands and dwindling

productivity. In conversations pertaining to the country risk, a key risk is often ignored yet

as this report will show, this risk is not only affecting the country but individual businesses

as well.

Box 1: Did you know? As Unethical

Behaviour Increases, Staff Misconduct

Increases

71 percent of the employees’ who saw honesty

never or rarely applied in their organisation

also saw an act of misconduct in the past year.

This is compared with 52 percent who saw

honesty applied occasionally and 25 percent

who saw it applied frequently. The figures were

similar for respect and trust. (2000 National

Business Ethics Survey, USA)

In Zimbabwe, business ethics in private

and public companies is generally seen as

an abstract term. Whilst there is a general

consensus that business ethics is important,

corporate Zimbabwe seems to be falling

short of dealing decisively with illicit

dealings. Our concern as a Consultancy is

that companies are taking business ethics

for granted – yet it may very well be

affecting productivity and competitiveness.

Our assessment suggests that whilst, Zimbabwean managers know that good ethics carry

many benefits (and the opposite, many penalties), the challenge we seem to note it that

managers seem to think that ethics is someone else’s problem and that their companies are

generally fine – everything is under control. This is illusive thinking. A shocking, 3 in every

1 IMF, 2012, Zimbabwe 2012 Article IV Consultation. [online] Washington, IMF Publishers. Available at

www.imf.org

http://www.imf.org/


10 employees have witnessed an illicit dealing being undertaken in their organisation in the

past six months. Of these, only 1 in every 2 reported the matter. This is not surprising.

The period 2000 – 2009 was one that was very challenging for Zimbabwean businesses. In

order to keep organisation’s afloat, many executives had to abandon the ‚straight jacket‛

business principles. It was not unusual for a company to trade illegally in foreign currency,

resort to creative accounting to evade paying taxes or offer a bribe to get desired services.

The focus was to ensure the company survives by hook, or crook. What companies did not

realise was that although these measures would have seemed justifiable ‚in the light of

prevailing circumstances‛ a terrible precedent was being set. Survival measures eventually

gave room to wholesale corruption in both private and public companies. Consequently

now when the country is trying to recover, the activities of this period keep coming back to

haunt organisations.

It is no surprise to see news headlines

implicating companies and their executives in

illicit business activities. In fact, whilst it may

be permissible to cite the current economic

environment for the challenges businesses are

facing, the impact on business of a

deteriorating moral fibre amongst employers

and employees, alike, is often taken for

granted. The biggest concern is what impact

will unethical business practises have on our

economy in the long run (and indeed the short

run) and will it be reversible? This is

compounded by the lack of decisiveness in

dealing with business ethics. Employees are

seeing unethical business practises happening

in their organisations but they are not willing

to come forth and report what they see.

Box 2: These behaviours are a smoking gun. Should you see

behaviour such detailed below in your organisation, be rest

assured you are about to face an ethics problem

1. Employees over-promising to win a customer, gain support for a

pet project or avoid a confrontation.

2. Goal lowering: Employees aiming for adequacy, because they fear

the consequences of failure more than they value the rewards of

success.

3. Budget twisting, such as padding the budget in anticipation of

cuts or going on end-of-the-year spending sprees to match

estimates to actuals.

4. Sharp-penciling: Employees fudging reported results to stay

competitive for pay and promotions.

5. Fact hiding: For instance, employees allowing the boss to fail by

withholding information and not pointing out risks, or not telling

people they need more time or don’t fully understand.

6. Detail skipping: Employees paying insufficient attention to the

small things.

7. Praise pinching: A general tendency for team members to

inadequately acknowledge the good work of others.

8. Credit hogging: Employees taking credit for others’ work, as when

an individual claims responsibility for a group report.

9. Blame buffering: Employees wasting time and energy, as by

writing endless memos, to distance themselves from potential bad

decisions.

10. Scapegoating: Employees faulting others for their own bad

decisions or poor results.


Business Ethics In Zimbabwe, How Bad Is It?

Business ethics is defined as the application of a moral code of conduct to the strategic and

operational management of a business. Our research shows that employees know when

there is a ‚dead rat‛ – in essence, employees seem to be generally knowledgeable as to what

is ethical and what is not. 4 in every 5 employees surveyed correctly defined business ethics.

Ethical (and unethical) business practises are an outcome—they are an outcome of a

country’s legal, economic, cultural and political institutions. Ethical/ unethical business

practises should be understood as a response to either beneficial or harmful rules. For

example, unethical business practices may appear in response to perceived malignant rules –

when individuals pay bribes to avoid penalties for harmful conduct OR when monitoring of

rules is incomplete—as in the case of theft. Equally, unethical business practices can also

arise because bad policies or inefficient systems; here, employees develop illicit

manoeuvring mechanisms (Djankov, LaPorta, Lopez-de-Silanes and Shleifer, 2003)2.

Our findings suggest that in the last six months, 3 in every 10 employee surveyed have

observed an unethical business activity happening in their organisation. This is an alarming

result. The prevalence of unethical business practices seems to vary across sectors, with

public enterprises and government departments having the highest observed incidences. As

the table below shows, 1 in every 2 public service employee surveyed has witnessed an

unethical business practice in the last six months.

2


Table 1: Have You Observed An Unethical Business Practice In Your Organisation In The Last Six Months?3

Public Service 50.00%

Law and Legal Services 50.00%

Retail 45.00%

Engineering 37.50%

Automotive 35.00%

Agriculture and Agro-processing 32.30%

Education 32.10%

Construction 28.60%

Tourism and Hospitality 26.30%

Mining 25.00%

Non Governmental Organisation 25.00%

IT and Telecommunications 23.80%

Manufacturing 21.10%

Financial Services 18.60%

Marketing and Advertising 13.80%

Medicine and Pharmaceuticals 8.70%

The results above present interesting findings. Research has shown that business ethics can

have a profound effect on company performance. In a research undertaken by Webley and

More4, companies with fewer incidences of unethical business activity were noted as

generating significantly more economic value added (EVA) and market value added (MVA)

that those with higher incidences. Similarly, the same companies also experienced less P/E

volatility and showed a gradual increase in average return on capital employed than did

companies with business ethics challenges. Our assessment shows that this same argument

may hold for Zimbabwean companies. A correlation of the perceived incidences of

corruption (as detailed above) to the projected growth forecast for the respective sectors

revealed a negative correlation (-0.25) between the two variables. In essence, our assessment

3 Percentage of employees who affirmed to the question 4 Simon Webley and Elsie More, Does Business Ethics Pay?: Ethics and Financial Performance,

Institute Of Business Ethics, London, 2003


suggests that the sectors that are set to grow faster this year have fewer employees who can

say they have witnessed corruption taking place in their organisations.

Our research shows that unethical business practices in Zimbabwean organisations seem to

be endemic, that is, unethical business practices cannot be said to be exclusive to a particular

segment of employees (ref Table 2).

Table 2: Have you observed an act of corruption in your company/ organisation in the past six months?

Employee Level Yes No

Non- Managerial 22.60% 77.40%

Junior Management 32.80% 67.20%

Middle Management 23.70% 76.30%

Senior Management 27.60% 72.40%

Executive 30.40% 69.60%

Though fewer non-managerial employees (22.60%) agreed that they have seen an act of

corruption in their organisations, the concern is the higher probability of concealing

unethical business practices amongst non managerial employees when compared to other

employee segments. The trend we noted suggests that the lower ranking an employee the

higher the probability that that employee will not report a colleague’s unethical business

practices. This poses a serious challenge for whistle blowing initiatives.


Our assessment suggests that what seems to be spurring unethical business activities is the

rather lackadaisical response of management to the reported cases. 13.36% of the surveyed

employees said management did not do anything about the report; in essence, the report

died a natural death.

Table 3: Which statement best describes how your organisation responded when an employee reported an act of

corruption?

Management took decisive steps by investigating the matter

and brought the responsible person(s) to justice

76.81%

Management did not do anything about it – the report died a

natural death

13.36%

The employee reported the issue to their supervisor and the

supervisor did nothing about it

2.04%

The reporting employee was victimised but was allowed to

remain in the organisation

3.15%

The reporting employee was victimised and managed out of

the organisation

4.64%

0

10

20

30

40

50

60

70

80

90

100

Non Managerial Junior

Management

Middle

Management

Senior

Management

Executive

Chart 1: If you saw your colleague engaging in unethical activities would you

report the matter?

Yes

No


Managers As Role Models

When it comes to business ethics, the classical adage ‚do as I say and not as I do‛ does not

apply. Resultant employee behaviour will not be guided by what supervisors tell their

subordinates but rather how subordinates view and perceive the behaviour of their

superiors. In this context, our findings are less encouraging. Only 4 in 10 employees

surveyed think that there is sound corporate governance in their organisation. Further, only

8 in every 10 employees feel that their immediate supervisor practices good business ethics.

Managers and executives in organisations have a dual responsibility. On one hand, they

have the mandate to create value and enhance the organisations profitability and on the

other, they have the responsibility to define and influence the value structure and moral

culture of the organisation. It is the responsibility of management to set and communicate

the right tone and inspire subordinates as a role model for good personal and corporate

conduct.

As mentioned above, unethical business practices in Zimbabwean organisations are very

pervasive. What we seem to see is the application of the Jesus example, watch me do it and

then go and do it alone. The starting point towards dealing decisively with unethical

business practises is for managers to be exemplary. Exemplary management behaviour

consists not only in defining and communicating the structure of the basic values and

creating appropriate tools with which they can be implemented in practice, BUT most

importantly through setting an example of coherent and consistent conduct.

Organisations cannot continue to choose to apply business ethics where it is conducive to do

so. If unscrupulous acts are allowed, or even encouraged in the organisation, then those

types of personalities dominate during the hiring process. Eventually it permeates

throughout the entire organisation and may negatively affect business through poor

customer service, compromised quality control, theft and ineffective human resource

policies.


Make Whistleblowing Work For Your Company

1 in every 2 employees who has witnessed an act of corruption has not reported the matter.

This is an alarming statistic. Why do so few employees actually report unethical business

practices? When Time magazine editors named WorldCom's Cynthia Cooper and Enron's

Sherron Watkins two of their People of the Year for 20025, they were acknowledging the

importance of internal whistleblowers—employees who bring wrongdoing at their own

organizations to the attention of superiors. At WorldCom, Cooper pushed forward with an

internal audit, alerting the Board of Directors Auditing Committee to problems, despite

being asked by the company's CFO to postpone her investigation. According to Fortune

magazine, "If Cooper had been a good soldier, the whole incredible mess might have been

concealed forever."6 At Enron, accountant Sherron Watkins outlined the company's

problems in a memo to then-CEO Kenneth Lay. But by the time Watkins and Cooper blew

the whistle, much damage had already been done, and the shareholders and employees

were the ultimate losers.

The right question therefore may not actually be, why do so few employees actually report

unethical business practices? RATHER, how can an organization create a culture that

encourages employees to ask questions early—to point out issues and show courage in

confronting unethical or illegal practices? And then, how can a company ensure that timely

action is taken? In other words, how does an organization encourage internal

whistleblowing?

Organisations and employees alike have long known the advantages of encouraging

employees to report misconduct. Reporting questionable business practices is critical to the

success of a company’s ethics and compliance initiatives. Yet as our research shows, it is not

sufficient to simply have whistleblowing programs, the overriding considerations are

related to the context and the implementation methodology of these programs.

5 Times Magazine, 2002. Persons Of The Year 2002 – TIME. [online]

http://www.time.com/time/specials/packages/article/0,28804,2022164_2021937,00.html [Accessed October 2012] 6 Fortune Magazine, 2003. Wonder Women Of Whistleblowing. [online]

http://money.cnn.com/magazines/fortune [Accessed October 2012]

http://www.time.com/time/specials/packages/article/0,28804,2022164_2021937,00.html

http://money.cnn.com/magazines/fortune


The norm is for employees to typically view with suspicion any programs/ initiatives that

management would make towards encouraging employees to blow the whistle. Rightly so,

there have been companies that have been known to implement whistle blowing initiatives

only to which hunt employees for management’s own advantage. For other organisations,

the concerns have not been entirely management’s reasons for implementing such

programs, rather, the degree of protection and confidentiality associated with such

programs. To this end, there are certain critical considerations that organisations should

make when establishing or reviewing whistleblowing programs.

1. Manage the attitudes and perceptions towards whistleblowing

7.79% of the survey respondents noted that in their organisation, the reporting employee

was victimised one way or the other. Victimisation may happen because of a general

misconception of whistleblowers. Whistleblowers are typically seen as a ‚snitch‛ or ‚a

lowlife who betrays the trust of others, largely for personal gain.‛ There are also perceptions

that employees cannot ‚bite the hand that feeds them and still expect to be invited to the

banquet‛ OR that ‚management is not held accountable to the same standard.‛ To make

whistle blowing initiatives work, there is need to get buy-in from both employees and

management alike. Confidence in the whistleblowing system is often inspired where

management demonstrates its resolve towards conducting business ethically and deals

decisively with deviant employees.

2. Create a Business Ethic Policy

Very few Zimbabwean organisations have Business Ethics Policies. The norm is for

managers to view policies as an inconvenience. For whistleblowing interventions to succeed,

employees should receive information about the company's confidentiality and

whistleblower protection policies in writing. Employees should also be offered training to

clarify when, why, and how to report misconduct. Such training provides an invaluable

forum for employees to discuss issues and raise questions. Further, employees should

receive ongoing, targeted messages reminding them of available reporting channels and

encourage them to raise concerns. These guidelines should also be communicated to

relevant third parties, i.e., agents, temporary employees, contract workers, customers, and


suppliers. Companies should not only determine a method for soliciting and investigating

inquiries and concerns but they should also establish a policy for providing feedback to the

whistleblower. Following up on concerns is crucial in combating deep rooted scepticism

toward whistleblowing.

3. Get Endorsement From Top Management

Top management, starting with the CEO, should demonstrate a strong commitment to

encouraging whistleblowing. This message must be communicated by line managers at all

levels, who are trained continuously in creating an open-door policy regarding employee

complaints. Further, as part of showing the Board’s resolve, Board Audit Committee’s

should be more accessible. Demystifying the activities of Board Audit Committee’s and

making them more in-touch with general employees will also be critical in encouraging

whistleblowing.

4. Investigate and Follow-up

13.36% of the employees surveyed noted that when cases of corruption were reported in

their organisations, management did not do anything about it and the report ‚died a natural

death.‛ Organisations that follow this pattern set a horrible precedent. In essence what they

are communicating to their employees is that business ethics is not a priority and that

employees should not even bother to report in the first place. Managers should investigate

all allegations promptly and thoroughly, and report the origins and the results of the

investigation to a higher authority. At IBM, for example7, the Business Ethics Policy requires

that any complaint received must be investigated within a certain number of hours. Inaction

is the best way to create cynicism about the seriousness of an organization's ethics policy.

5. Make Use Of External Reporting Channels

In spite of assurances of confidentiality and whistleblower protection, some employees may

still be reluctant to disclose misconduct through internal channels. While companies should

make every effort to encourage internal disclosures, they can also make use of external

7 Human Resources Online, 2007. IBM’s Business Ethics Policy. [online] http://www.hrnonline.com October

2012

http://www.hrnonline.com/


reporting channels. Providing information on external reporting channels will cause even

the most ardent sceptics to start believing that the organization takes whistleblowing

seriously.

6. Monitor and Evaluate

For policies to be truly successful, they must be tested against the experience of the end user.

The challenges that Zimbabwean companies face is that they develop a policy, teach it to

employees and shelve it until an incident happens. It is important for managers to find out

employees' opinions about the organization's culture, that is, its commitment to ethics and

values. Surveys provide an excellent opportunity for organisations to get feedback on the

relevance and effectiveness of their policies.

Rewarding for “A” Whilst Expecting “B”: The Case of the Ford Pinto

In an article entitled Why Business Ethics, John Hooker possess that everyone agrees that

managers should study finance and marketing; but, is it necessary for managers to study

business ethics?8 Hooker argues that these arguments are confused and mistaken on several

levels. ‚Perhaps when business people ask why they should be ethical,‛ says Hooker ‚they

have a different question in mind: what is the motivation for being good? Is there something

in it for them?‛

1 in every 3 senior manager/ executive has witnessed an act of corruption in their

organisation in the last six months; of those that have seen an act of corruption, 2 in every 3

have reported the matter. This presents glaring differentials with non managerial

employees. Only 1 in every 3 non managerial employees reported the acts of corruption they

saw. Whilst there may be a host of explanations to account for this difference, one interesting

conclusion may be that the vast majority of managers mean to run ethical organizations –

yet if this correct, one would ask, why is there a high incidence of unethical business

practice?

8 Hooker, J. 2003. Why Business Ethics. USA. Carnegie Mellon University Press.


Part of the problem is that some company leaders are outright crooks and they direct

unethical business practices from the top – though this is rare. Our research suggests that

employees practice unethical business practice because, one, managers/ executives are

oblivious of unethical business practices happening in their organisations and, two,

managers/ executives may actually be encouraging it.

An infamous example of this thinking is the case of the Ford Pinto. In 1970, Ford Motor

Company produced the Ford Pinto. This car was notorious for its tendency to rupture fuel

pipes and explode into flames upon rear-end collisions. More than twenty people were

either killed or injured in Pinto fires before Ford decided to recall the vehicle and correct the

problem. A critical assessment of the decision making chain leading to the launch of the car

revealed that under immense competition from Volkswagen and other car manufacturers,

Ford had rushed the Pinto into production. Ford engineers discovered the inherent danger

of ruptured fuel tanks in preproduction crash tests, but the assembly line was ready to go,

and the company’s leaders decided to proceed.

Many saw the decision as evidence of the callousness, greed, and dishonesty of Ford’s

leaders—in short, Ford management was very unethical. But looking at their decision

through a modern lens— and assessing how cognitive biases distort ethical decision making,

a different conclusion may be reached. Few, if any, of the executives involved in the Pinto

decision believed that they were making an unethical choice. Why? Because they may have

thought of it as a purely business decision rather than an ethical one.

A cost benefit analysis – a rational approach to the dilemma – would have necessitated

putting a dollar value on the redesign, potential lawsuits (and loss of life) and it might have

proven cheaper to pay off lawsuits than to make a repair. This methodical assessment may

have obscured how they viewed and made their decisions. This is not different from how

most of our managers are educated. Our education system would emphasize on revenue

generation and profit maximization – with less emphasis, if any, on business ethics. The


result is ‚ethical fading‛ a phenomenon that takes ethics out of consideration and even

increases unconscious unethical behavior.

We believe that this psychological fact asserts the need to have formal business ethics

policies and procedures that can help curtail such excesses. As in the case of Ford, there is a

high probability that where unethical business practices happen, most senior company

executives – Chief Executives/ Managing Directors in particular – will be unaware (and not

that this exonerates them in any way). When the potentially dangerous design flaw was first

discovered, no one informed the Ford VP. Why? ‚Hell no,‛ exclaimed an executive ‚That

person would have been fired. Safety wasn’t a popular subject around Ford in those days.

With [the VP] it was taboo. Whenever a problem was raised that meant a delay on the Pinto,

[the VP] would chomp on his cigar, look out the window and say ‘Read the product

objectives and get back to work.’‛ (Mother Jones Magazine, 1977).

Industrial Psychology Consultants notes that effectively dealing with issues relating to

business ethics requires managers to effectively grasp how their cognitive biases and

incentive schemes can negatively skew behavior and end up actually encouraging unethical

business practices.

Concluding Observations

This research has revealed interesting findings on the prevalence of unethical business

practises in Zimbabwe. The most alarming of which was the finding that 1 in every 2

employees who see an act of corruption in their organisation does not report it. Our

assessment suggests that organisations may very well be encouraging the behaviour they

are trying to discourage. Zimbabwean companies need to institute rigorous policies to allow

employees to bring unethical and illegal practices to the forefront. In addition, companies

need to perform objective self assessments of their decision making processes and

performance expectations. The lesson is clear, when employees behave in undesirable ways,

it is prudent for management to assess what they are encouraging them to do – knowingly

and unknowingly. The pressure in accounting, law and consulting firms to unethically


maximize billable hours; the pressure of production teams to increase output whilst cutting

corners; the pressure for bankers to increase revenue through charging punitive interest on

borrowers they knew would default anyway – this is behaviour that is usually encouraged

unintentionally by organisation. A starting point may very well be a review of organisations

performance expectations from staff.

Research Methodology

718 Zimbabwean employees participated in the survey. All responses were collected on-line

using an instrument with 14 questions. Participants were asked whether or not they have

been in formal employment over the past six months. Those that responded negatively were

removed as the survey was only targeting people that were currently employed. The

average age of the participants is 36 years. 69.15% of the respondents are males and 30.84%

are females. 21.20% are non-managerial employees, 17.90% are part of junior management,

31.50% are in middle management, 17.00% are senior managers and 9.20% are executives.

Employees that participated were from 18 different economic sectors.

All respondents participated willingly in the survey and were entitled to express their free

and honest opinions. Industrial Psychology Consultants does not hold itself liable to any

derogatory comments nor opinions expressed as part and through this survey. Our

objective, however, is that this report may be used constructively towards creating

organisations that engage the support of their key stakeholders. Responses reflect business

ethics levels during the period July to September 2012, the period in which data was

collected.

This report contributes to Industrial Psychology Consultants goal to help leaders understand

the forces transforming the local and global economy, improve company performance, and

work for better national policies. The report is in-line with our mission of maximizing

returns on human capital. As with all Industrial Psychology Consultants research, this work

is independent and has neither been commissioned nor sponsored in any way by any

business, government, or other institution.

Documents

Business Ethics in Zimbabwe Research Report