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Business Basics – 103

Part 2 – Management’s role in setting ethical standards

Ethics isn’t so much taught as it is picked up vicariously. We tend to learn our standards and values based on observing what others do, not what they say. Organizational ethics begins at the top, with leadership and strong managers helping to instill corporate values in employees.

Intra-company relationships should be based on fairness, honesty, openness and moral integrity. Trust and cooperation between workers and managers is built on these foundational structures. The same applies to business-to-business relations as well. Businesses managed ethically often enjoy many benefits, such as maintaining a good reputation, keeping existing customers and attracting new ones, avoiding lawsuits, reducing employee turnover, pleasing customers and employees, and simply doing the right thing.

While some managers think ethics is a personal matter, having nothing to do with management, and that they are not responsible for their employee’s misdeeds, the business environment has moved the other way, that ethics has everything to do with management. There is recognition that individuals typically don’t act alone, they need the direct, or even implied, cooperation of others to behave unethically within a corporation. For example, poorly designed incentive programs might reward employees for meeting certain goals, and in order to meet these goals they need to act in their own best interests rather than the best interests of the customers. Here the message is clear, while their managers don’t directly say to deceive customers, overly ambitious goals and incentives can create an environment in which unethical actions are likely to occur.

A popular trend is that companies are adopting written codes of ethics. While these codes vary greatly, they fall within two broad categories: compliance-based and integrity-based. Compliance-based codes emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers, while integrity-based codes define the organization’s guiding values, create an environment supportive of ethically sound behavior, and stress shared accountability. Stated differently, integrity-based codes of ethics go beyond legal compliance and create an environment emphasizing core values such as honesty, fair play, good customer service, a commitment to diversity and community involvement.

Business ethics should include the following:
1. Top management should adopt and unconditionally support a written code of conduct.
2. Employees must understand expectations for ethical behavior, that it comes from the top, and that senior management expects all employees to act accordingly.
3. Managers and other key personnel must receive training on the ethical implications of business decisions.
4. The company should create an ethics office, where employees can communicate freely. Make it clear to employees that whistleblowers are protected from retaliation.
5. Pressure to ignore ethics programs often comes from the outside. Help employees to resist such pressure by ensuring outsiders such as suppliers, subcontractors, distributors, customers, etc. are aware of the company’s ethical standards.
6. The code of ethics must be timely enforced if violated.

Enforcement might be the most critical component, it communicates to employees that the code is serious; a company’s code of ethics is worthless if not enforced. Select an effective ethics officer to set a positive tone, communicate effectively, and relate well with all levels of employees. The ethics officer should be comfortable in the roles of counselor and investigator, should be trusted to maintain confidentiality, conduct objective investigations, and ensure fairness. This demonstrates to stakeholders that ethics is important in eveything the company does.

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Business Basics – 103

Part 1 -The responsibility of businesses to their stakeholders: customers, investors, employees and society

Mover/entrepreneur Aaron Steed recognizes that “it [isn’t] so much about how we moved furniture, it was about how we made our clients feel.” This young man understands that the customers’ experience is critical, and in fact it is that same attitude that has led to the huge success of his moving company.

Aaron and his brother, Evan, of Meathead Movers, early in their young business, began moving women out of domestic abuse situations for free. They also implemented a policy of hiring student athletes: respectful, clean-cut, drug-free. These ethical entrepreneurs are moved by each call they receive from a domestic abuse survivor thanking them for turning something so bad into a celebration of moving to their new homes and new lives. And this, in turn, has led executives and employees of domestic abuse centers to recommend Meathead Movers throughout their local non-profit community, resulting in huge growth for the business.

Ethics is more than legality. A society gets into trouble when people consider only what is illegal and not also what is unethical. Ethics and legality are two very different things. Although following the law is an important first step, behaving ethically requires more than that. Ethics reflects people’s proper relationships with one another: How should we treat others? What responsibility should we feel for others? Legality is narrower; it refers to laws we have written to protect ourselves from fraud, theft and violence. Many immoral and unethical acts are legal nonethless.

We define ethics as society’s accepted standards of moral behavior; behaviors accepted by society as right rather than wrong. Many people have few moral absolutes, deciding on a situation by situation basis. They seem to think that what is right is whatever works best for them, that each person has to work out for himself the difference between right and wrong. This thinking may be part of the behavior that has led to scandals in both government and business.

This is not the way it always was. In the United States, for example, with so many diverse cultures, it might seem impossible to identify common standards of ethical behavior. But this is not true. Common statements of moral values include integrity, respect for human life, self-control, honesty, courage and self-sacrifice. Cheating, cowardice and cruelty are commonly deemed wrong. And of course there is Golden Rule: Do unto others as you would have them do unto you.

Ethics begins with each of us. It is easy to criticize business and political leaders for moral and ethical shortcomings. Managers and workers often cite low managerial ethics as a major cause of US businesses’ competitive problems. But employees also frequently violate safety standards, or goof off during the work week. Adults in general are not always as honest or honorable as they should be. Even though volunteerism is at an all time high, 75% of our population do not give any time to the community in which they live. Plagiarism is the most common form of cheating today. And while most teens believe they are prepared to make ethical decisions in the workplace, more than half of high school students admit they have cheated on tests in the past year. Studies have found a strong relationship between academic dishonesty and workplace dishonesty.

Choices are not always easy, and the obvious ethical solution may have personal or professional drawbacks. Aaron and Evan Steed were young entrepreneurs, scraping by, yet due to their sense of right and wrong decided to offer free services to domestic abuse survivors. Non-paying customers certainly pose drawbacks, especially for a new enterprise. But their ethical convictions not only lead them to doing good, it also resulted in them doing well.

It can be difficult to balance ethics with other goals, such as pleasing stakeholders or advancing your career. These three questions may help: Is my proposed action legal; does it violate any law or company policy? Is it balanced; am I acting fairly; would I want to be treated this way; will I win at the expense of another? And how will it make me feel about myself?

Remember, doing well by doing good is a good thing.