Three Dimensional Ethics: Implementing Workplace Values

Citation preview

3D ETHICS implementing workplace values

Dedication

For Ruari & Pearse & Katherine & Liam

and To those who cannot speak for themselves for the legacy we bequeath them

‘I have seen most of what there is to see in this profession, but what I experienced on this trip is the worst. When we asked for food and medicine for the refugees, the Australians sent commando troops onboard. This created a very high tension among the refugees. After an hour of checking the refugees, the troops agreed to give medical assistance to some of them.... – The soldiers obviously didn't like their mission.’ Arne Rinnan, Captain of the Tampa – quoted in Norway Today, August 2001 Captain Arne Rinnan received the highest civil honour in Norway as a result of his handling of this difficult incident. All the companies who had cargo on Tampa congratulated Captain Rinnan, despite the various cargos having been delayed by 10 days. Australia threatened to prosecute Captain Rinnan as a people smuggler. The crew of the Tampa received the Nansen Refugee Award for 2002 from the United Nations High Commissioner for Refugees (UNHCR) for their efforts to follow international principles of saving people in distress at sea, despite repeated threats of imprisonment and confiscation of the ship from the Australian government. (http://en.wikipedia.org/wiki/MV_Tampa)

3D ETHICS implementing workplace values personal, organisational and social dimensions of business ethics

Attracta Lagan Brian Moran

Sydney • Amsterdam • Palo Alto

ISBN 0-9757422-3-X National Library of Australia Cataloguing-in-Publication: Lagan, Attracta. 3D Ethics: Implementing workplace values. Bibliography. Includes index. ISBN 0 9757422 3 X. 1. Business ethics - Australia. I. Moran, Brian (Brian Patrick). II. Title. 174.4 © 2006, eContent Management Pty Ltd All rights reserved. No part of this publication may be reproduced in any form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the express written permission of the publisher. Edited by Jenny Gibson Developmental editing by James Davidson Designed and typeset by Kim Webber Printed in Malaysia by Vivar Printing Sdn Bhd Published by eContent Management Pty Ltd (SAN 902-4964) ABN 87 091 432 567 PO Box 1027, Maleny, QLD 4552, Australia Tel. +61 (0)7 5435 2900; Fax +61 (0)7 5435 2911 www.e-contentmanagement.com

FF O O RR EE W WO O RR D D In the spirit of transparency, honesty and integrity which Three Dimensional Ethics does so much to promote, let me begin by owning up. The sad fact is that – like many of those who will consider reading this book and even greater numbers who won’t – I find much of what passes for business ethics these days tedious, boring and not hugely helpful. Worse, when I find myself invited to some of the world’s top companies and business schools to help them sensitise their staff or students to the ethical dimensions of modern management, the processes are often akin to sheep-dipping. A half-day – or if the school is really serious, a whole day – is devoted to dunking people in some of the issues that sank companies like Enron and left others veering out of control. It is like offering navigation training to ships’ captains in time of war with one minor option on minefields and torpedoes. When I started in the environmental field over 30 years ago, there were still industrial chaplains. If you wanted to discuss environmental issues, you were sometimes directed to these people. They were worthy, well-intentioned souls, but the more honest (or perceptive) among them admitted that their work was largely ineffective. Over time, as more and more companies collided with new societal attitudes, new processes of stakeholder engagement evolved. Leading companies also established special committees of their boards, to ensure that – as far as possible – ethical issues were identified and assessed in good time and good order. But, as we all know, the Enron ethics statement was a misleading masterpiece, often quoted as a model before the company ran onto the rocks. Even businesses that survive major ethical collisions often fail to learn all the necessary lessons. A company like Shell, with its long-established statement of general business principles, nonetheless managed to hit not just one ethical iceberg in 1995, but two. And even after all of that pain, and the resulting determination, never to get itself into such a position again, the company still found itself back in hot political water recently when the financial markets woke up to the fact that some aspects of Shell’s accounting for oil and gas reserves had veered towards New Economy-style wishful thinking. Companies – like most of us – are creatures of their times. And one of the things that readers will find particularly helpful about Three Dimensional Ethics is the distilled versions of the thinking of people like Confucius, Immanuel Kant, Jeremy Bentham, John Stuart Mill and Carol Gilligan. But, if like me, you find some of these people hard to fathom, an even more useful aspect of the book will be the checklists, panels and case studies, ranging from the full (but brilliantly concise) text of Johnson & Johnson’s much-praised Credo through to panels on subjects like the

v

vi

F OREWORD

so-called ‘Please the Boss’ syndrome and on how to carry out an ethical audit. Having just led our own team through a process of rebooting our Mission, Vision and Values as we head towards our twentieth anniversary, I know two things. First, managed well, values can help guide high-performance organisations through the stormiest of waters. But second, if managed badly, they can be as dangerous as compasses in magnetic storms. Three Dimensional Ethics provides practical guidance on how to design and run an ethics training program, including how to neutralise or expose those who try to sabotage the process. And expect push-back. Ultimately, business ethics are political, in that they link back to the fundamentals of how business is done, how resources are allocated and, in the end, to the guts of a company’s business model. After 1995, Shell produced a number of scenarios. Two of them are relevant here: Business Class and Prism. In Business Class, globalisation drives a convergence of markets, business models and, ultimately, ethics. Western-style capitalism and associated business values are to some degree triumphant. In Prism, and it’s interesting that Attracta and Brian also use the prism metaphor in their Introduction, the world is much more diverse, where the challenge for companies working in different countries and world regions is highly complex. In this respect I find the coverage of China in Chapter 8 particularly useful. As the 21st Century gets into its stride, with the values and politics of emerging economies like China and India increasingly shaping how business is done, we must ensure that our ethical compasses are robust. The future holds not just climate-change-driven disturbances like Hurricane Katrina but also valuesdriven magnetic storms that will have the navigational systems of some businesses spinning wildly. Three Dimensional Ethics isn’t the complete answer; no book can be. But Lagan and Moran will help growing numbers of business leaders and executives to guage their organisational climate and chart their course through the risks and opportunities of tomorrow’s markets. Attracta and Brian are to be congratulated for Three-Dimensional Ethics’ selection in the Australian Financial Review’s Top 101 Business Books List (Boss Magazine, January 2006). They offer lively, relevant and above all usable insights into a subject many consider tedious. And they provide a practical perspective on business ethics training – with local case studies, helpful definitions and checklists and reflective personal exercises. You have in your hands an important tool for raising ethics awareness and accelerating the adoption and application of new standards in your organisation to meet rapidly mutating social requirements. John Elkington Co-Founder SustainAbility (www.sustainability.com), 1987 Chairman 1996-2005; Chief Entrepreneur, 2005 Author: Cannibals with Forks: The Triple Bottom Line of 21st Century Business (Capstone Publishing, Oxford: 1997)

London, 5 December 2005

CC O ON N TT EE N N TT SS Foreword

by John Elkington

v

Introduction The examined life

1

CHAPTER 1

Who decides what is ethical? Society, organisations or individuals?

7

CHAPTER 2

Changing societal values The rise of stakeholder capitalism

CHAPTER 3

Governance, corporate social responsibility and employee accountability

49

CHAPTER 4

Context, challenge and choice

67

CHAPTER 5

Understanding ethical perspectives The mindfield of personal ethics

79

CHAPTER 6

Becoming comfortable with the ethical dimension

101

Virtue ethics and the rise of the meaning economy

121

CHAPTER 8

Ethics and doing business in China

139

Epilogue

Intergenerational equity

152

Appendix 1

The Global 100 List – Corporate Knights Inc.

159

Appendix 2

The ANZ Top 120 – RepuTex ®

161

Appendix 3

Universal Declaration of Human Rights

164

CHAPTER 7

31

Useful websites

170

Further reading

172 vii

Endorsement

THREE DIMENSIONAL ETHICS Implementing Workplace Values The way a society behaves is a reflection of the ethics honoured within it. We will have the society that reflects the values demonstrated by leaders and role models in our society. Thus, if our political leaders tell lies or break a promise and are not brought to account – or if businesses are not governed by and operate according to codes of behaviour which show honesty, care and respect – then the acceptance of the messages their behaviour sends will eventually become accepted as the value base of our society. Our society’s messages or exemplars on ethical issues come from many sources and given the strength, influence and reach of business in society, it is only right that we should look to business to reflect all that we, as individual citizens, want to be proud of in our society. This book will help business leaders to achieve that. Graeme Wise, MD The BodyShop Australia Founder, Melbourne, 15 November 2005

‘This is an impressive crowd - the haves and the have-mores. Some people call you the elite; I call you my base’ George W Bush, US President Alfred E. Smith Memorial Dinner, New York, hosted by Archbishop Edward Egan - CBS News October 20, 2002 There's no longer any countervailing power in Washington. Business is in complete control of the machinery of government.. If corporate America understood its long-term interest, it would use this unique moment to establish in the public's mind the principle that business can be trusted. Robert B. Reich, former US Secretary of Labour, ‘Corporate Power in Overdrive’, The New York Times, 18 March 2001

33 D D EE TT H H II CC SS

INTRODUCTION The unexamined life is not worth living Baruch Spinoza (1634-1677) Ethics is no longer a purely personal concern. Nor is it something that organisational leaders can take for granted. The waves of corporate and political scandals that have characterised the emergence of the global marketplace highlight how institutionalised greed has made ethics everyone’s concern. While business is widely recognised as the most powerful force in raising living standards and promoting democratically elected governments, its shadow side is equally influential. The corporation’s potential for causing physical, mental and financial injury to employees, customers, community, the national economy and the natural environment has also been highlighted by celebrity cases drawn from corporate case histories. Today, a well-tuned sense of the ethical has become a ‘must have’ for those in business wishing to create and belong to sustainable enterprises, as well as for the average person in the street who is concerned about who they work for, who they buy from and who they invest in. Therefore we have written this primer. Business ethics is set to become a locus of discontent in the 21st Century as the world of commerce – predominantly without national boundaries or electorates – becomes the major shaper of the global commons. Business will determine the quality of the air we breathe, the fuel we burn, the food we eat and the water we drink. So too, it is business which will shape the emergence of a global society by determining who is included, who is informed, who gets what and which human rights are enshrined in the global workplace. Business now has to have the potential to enhance or destabilise social progress in equal measure. This ethics primer will help business leaders create a mission, vision and values program for their organisation which addresses these issues through including stakeholder interests – and in doing so will sustain improved performance.

1

2

I NTRODUCTION

We can no longer look to the past to define the ethical dimension. The goal posts for business ethics have changed dramatically, and will go on changing – so we need to become much more comfortable with this debate. What is deemed to be ‘ethical’ or ‘unethical’ will define tomorrow’s social acceptability and, in a wider sense, what comes to be regarded as our social reality. While global values may be lived out differently in different countries, increasingly there is universal agreement on the unacceptability of certain business practices as well as what good practices in corporate social responsibility look like. This is already producing a proliferation of voluntary and regulatory behaviour codes designed to weave an ethical safety net below the global marketplace. It articulates a new vision of capitalism that accentuates mutually beneficial accountabilities as the basis of a healthy relationship between business and society’s interests. This primer helps businesses to build that relationship. Here in the West, the notional divide between the short-term, narrow interests of shareholders and accountability to a wider group of stakeholders continues to be hotly debated even as a global era in stakeholder capitalism is being forged. The polarisation of the world into East and West no longer holds. European and Asian countries subscribe to a much more communitarian model of capitalism while America and Australia cling to the individualist model. Changing social values will encourage major institutional investors and pension managers increasingly to put a brake on the short-term focus of the market place. This will encourage greater accountability from boards of directors and business leaders to better balance the interests of different stakeholders – to ensure that what is good for business is also what is good for society. Employees, who cannot swap their employers as easily as investors can swap their investments, will increase their demands to be recognised as critical organisational stakeholders. Employees have personal needs which they seek to have satisfied from their work experiences and who, like shareholders, also carry significant risks that justify greater inclusion in the decisions which affect them. In ‘Three Dimensional Ethics: Implementing Workplace Values’ three ‘personalities’ of ethics – individual, organisational and social – converge into a connected whole. Their application demonstrates consistent and predictable behaviour, aligned to stated personal, workplace and democratic values, which are increasingly sought by employees, business and society for sustainable business. No longer is business permitted to sit outside society merely co-existing with it uncomfortably. Businesses’ licenses to operate exist both within the law and the community. Individuals are no longer prepared to separate the identity of the person they are at work from the person they are outside work. Ethics happens in three dimensions (personal, workplace and social) and these dimensions play together as parts of a family whole. We coined the phrase ‘3D Ethics’ to help

I NTRODUCTION

readers better understand the ever-changing relationship between the dimensions of your personal values, workplace requirements and social expectations. Recently, a retiring partner in an accounting firm, in looking back over a long and distinguished career, lamented that ethics is no longer something that is within individuals. It is something that now needs to be taught as part of a university curriculum or on an executive retreat. Similarly, a high school principal explained how her school had recently introduced ethics as a senior subject as teachers were concerned at the decline in values such as honesty. As an example she pointed to the fact that today, a mobile phone found in the school corridor is now assumed to be the property of the finder, while the value of respect could no longer be assumed and had to be earned daily. On the positive side, the compartmentalisation of life that was customary in the 60’s and 70’s is no longer acceptable to generations of young people brought up in a networked world where transparency and accountability have converged as a new priority value. The ‘include me’ world of electronic messaging, email, internet and intranet relationships no longer facilitates notions of ‘private vice/public virtue’. ‘Walk the talk’ has become a mantra for an increasingly educated and informed populace that demands integrity from the public institutions that dominate their lives. In a world where 51 of the top economies are corporations; where the turnover of the top 200 companies is equal to one quarter of the world’s economic activity; where the GDP of General Motors is greater than that of Denmark; where many global corporations employ more people than nation states; where an estimated 40,000 corporations transcend national boundaries and where 40% of all the world’s media is controlled by five transnational corporations (TNCs), it is no wonder that people have become increasingly demanding about the accountabilities of big business. In successive surveys of public opinion, the World Economic Forum (WEF) has found that multinational corporations sit second top of the list of least trusted institutions. It is perhaps of greater concern that democratically elected governments came top of the least trusted. The remediation of business has become a pressing concern for all leaders of multinational corporations – which explains the emergence of corporate governance and corporate social responsibility (CSR) as two critical areas of management strategy and operations in leading global companies, and why the debate on business ethics is here to stay. In this layman’s introduction to business ethics, we have used metaphors and models to illustrate the important elements of the ethical dimension of 21st Century life. In searching for a concept that would best capture the complexity of the

3

4

3D E THICS

modern business ethics debate, the metaphor that came to mind was that of a prism. A dictionary definition of a ‘prism’ is a transparent body used for separating white light passed through it into a spectrum for reflecting beams of light, or a medium that represents whatever is seen through it. For us, this perfectly symbolises the life of an organisation. The white light in this instance represents the traditional self image of the corporation, inherently serving society as it brings economic prosperity and employment to a grateful society, a closed system not subject to scrutiny by a trusting world. In the 70s and 80s, a mirror would have been an appropriate metaphor for business, deflecting any internal scrutiny and acting as a shield from the glare of social inspection. But times have changed. Today, society does indeed expect that light to be transparent and the corporation to be much more transparent in its dealings with all of its stakeholders – the market, employees and society at large. But for this to happen, the organisation has to recognise that it cannot be all things to all people. Business organisations, in particular, cannot display multiple personalities depending on which way they are facing. Integrity is about displaying behaviours which are consistent with your values no matter which ‘audience’ you are speaking to. Shareholders must see the same face as employees, as must governments as represented by regulators, as must the wider stakeholder community. A prism, then, is a useful metaphor for describing how we see business today, too often prepared to be whatever people choose to see it as; what the shareholders need to see versus what the regulators need to see; what primary stakeholders such as investors need to see versus what secondary stakeholders such as the media or lobby groups should know; what it’s like to work there versus how the wider society sees the organisation as manifested in its advertising. What business needs to do is turn a prism into a lens, through which its various elements and constituents can seen focused into a single ‘personality’. In this way the organisation, made up of many parts, becomes the same thing to all people. We hope this image may help to illustrate how the perspective we take on events shapes our understanding of those events – and how other stakeholders might take quite different perspectives to us. The prism, lens and mirror (magnifying glass and microscope) are used as educational icons in this primer’s panel features to reinforce these metaphors. We hope to bring a deeper understanding of the interdependent role of business, individuals and society in shaping who we are; how we choose to act in the world; and the sort of world we bring forth for the next generation. Today, business is subject to a myriad of influences that require managers and leaders to equip themselves with new knowledge and skills – to manage complexity and address the emotional as well as the financial aspects of corporate life. Study after study has pointed to the sense of inadequacy felt by those charged

I NTRODUCTION

with running our major corporations. The corporation is now a complex web of relationships operating principally as a social organism. This has left many responsible for managing it poorly matched to, or equipped for, the task at hand. Added to this is the growing expectation that corporations understand the need to behave ethically in managing the social assets with which they are entrusted: employees’ superannuation and pension funds; the interests of the communities in which they are embedded; the safety of employees and customers; the safety and welfare of consumers who use their products and services; the financial interests of ‘mom and pop’ investors; the natural environment with which they interact and for which they are responsible; the social welfare of citizens of other countries from which they buy materials and inventory; and the integrity of the marketplace itself in promoting social interests. How the organisation interprets and responds to these multiple inputs and turns them into complex spectra of light in the form of positive outputs will ultimately shape the ethical landscape of business and determine its future and its fate. Ethical standards are not set by business but by society as a whole. It is this interface with society’s expectations and the way business gets done that is shaping the public debate in which the nature of business ethics is being defined. The new social contract currently being fashioned between business and society, which arises from the environmental and corporate social responsibility movements, will ensure that the ethical debate that surrounds the extent of business accountabilities will continue to gather momentum. Business leaders will continue to be pressed to move out from behind – as well as to move beyond – legal compliance. They must step up to the challenge of explicitly managing stakeholder accountabilities arising from the impact of their products and services as the ethical dimension of their enterprises. 21st Century corporate governance requires an ethical strategy for core business activities that takes account of the potential negative impacts of the corporation and its products and services. An ethical strategy also seeks to balance the positive benefits and attributes of the output of the business with a clear acknowledgment of the potential harmful effects so that stakeholders can make informed choices about buying from or working with the business. On the big social issues it’s time for business leaders to find their voice and become comfortable with both speaking out and speaking up. It is no longer enough to manage in isolation and feel satisfied that ‘I’m doing my bit’ because today, organisational reputations rise and fall by industry and not by individual organisation. If one bank is seen to be greedy and callous, all banks are tarred with the same brush. One energy company promotes dodgy practices, and the whole energy industry comes under public scrutiny. If business leaders, as society’s most powerful leaders, are to raise the ethical baseline then they must join with other social leaders and advocate progressive social accountabilities. Already there are many corporate leaders who

5

6

3D E THICS

have stepped up to this task and have not sacrificed business success by so doing. The need for ethical sophistication will gather momentum in the coming years as genetic technological breakthroughs, industrial research and geoscience advances catapult us into a turbulent era where the traditional boundaries between humans and nature dissolve and taken-for-granted certainties fall away. Already our global ecosystem is severely stressed with half of all life on earth threatened with extinction as a result of the actions of humankind. The very survival of the planet depends on the decisions made in the next 20 years. Developing a heightened awareness of our interconnectedness and the ethical accountabilities this brings has never before been more necessary. This book, then, is an attempt to define business ethics today – how we can bring to the surface the ethical dimensions of everyday life. We show how the three dimensions of ethics – personal, organisational and social – can be aligned to nurture a coherent and healthy personal identity while working co-operatively to build a better future for all. We look at the relationship between ethics and profit, between the personal and the professional and between the professional and wider social expectations. We explore evolving public expectations of accountability and how personal and corporate personalities are shaped and hewn by the changing winds of global change. And, we provide practical advice and information on how to make ethics work at each of these levels. Finally, we believe that it is the individual inside the corporation that is emerging as the greatest influencer of ethical fitness – and we explore the symbols of this emerging phenomenon. We advance the theory that we are potentially seeing the emergence of a new ethical framework – one that is replacing the traditional priority given to notions of ‘duty’, ‘property rights’ and ‘what’s legal’. In its place, modern day ethics rests on notions of ‘duty of care’ to others, ‘individual virtue’, and visions of personal identity, character and concern for the sort of person we become and the societies we bring forth. We hope to persuade the reader that ethics is not just about morality; it can become a challenging dimension of personal and corporate life that will lead to higher performance. As Spinoza once said, ‘The unexamined life is not worth living.’ It is only by examining the big issues in our lives, by stepping back from the process of human creation that we begin to see things in their true perspective. Whether we like it or not, organisations dominate – some say consume – our daily lives. For many they have become the only stable influence in life. It is better, then, to understand the dynamics of human existence inside this complex world than to live in frustration at the toll it takes on our emotional well-being. Better even still, is to harness its tremendous power for social gain. The Age of Organisations is upon us. It is time that we sought to realise its potential for each dimension of human capacity.

CC H H AA PP TT EE RR 11

WHO

DECIDES WHAT IS ETHICAL?

SOCIETY,

ORGANISATIONS OR INDIVIDUALS?

Ethics is about character and courage. How we meet the challenge when doing the right thing will cost more than we want to pay. Robert D. Hass CEO Levi Strauss & Co.

Ethics, morals and the law Changing expectations of behaviour in society and business Until perhaps only 15 years ago, business existed comfortably outside of civil society. Politicians, business people and scientists lived in peaceful co-existence, each observing the sovereignty of their separate states. The rest of society understood their dependence on business for employment, taxes and the contribution to the economies of developed and developing countries that business provided. Like the complex ecosystem that thrives under our oceans, the little fish lived off the big fish, but the big fish in turn ate the little fish while the myriad of other species made sure they kept out of the way of the large predators, eking out an existence for themselves.

7

8

C HAPTER O NE

All of that changed at around the time of the first Earth Summit in 1992, where what had been evolving over the previous 10 years was given a name – sustainable development – and this subsequently became a movement which evolved to embrace corporate social responsibility and corporate citizenship. Inexorably, the social nature of business’ role became apparent and the growing voice of consumer discontent about corporate irresponsibility and greed turned to an audible roar. There is a belief in the field of social change that people only become concerned about change when it is deemed to have an immediate and direct effect on their lives. What we have seen in the last 20 years, with the rise of environmentalism coupled with the growth of consumer militancy, is a suspension of that belief and the emergence of a worldwide psyche (zeitgeist) that is prepared to support just agents for change, no matter how distant the cause from the lives of those supporting it. Consider the growth in size and power of NGO (non-government organisations) and not-for-profit (NFP) sectors over the last 50 years. Notwithstanding the fact that governments around the world have withdrawn from many public services now provided by NFPs, NFPs in fact are fast becoming the public face and voice of civil society. Membership of 7 major environmental groups in the US grew from 5.3 million to 9.5 million between 1980 and 1990, while in the social sector, NFPs in 22 countries employed 19 million full-time paid employees. In France, Germany, Japan, the Netherlands, Spain and the UK, 1.2 million full-time volunteers worked for international NGOs. In Barricades and Boardrooms: A Contemporary History of the Corporate Accountability Movement, Jem Bendell found that of the 13,000 international NGOs identified in year 2000, around one-quarter had been created since 1990 (paper 13, UNRISD 2000–2005 project Business Responsibility for Sustainable Development ISSN 1020-8216, 2004). According to a recent Business Review Weekly article on the charity sector (Charity Inc., March 24–30, 2005), there are now 700,000 registered charities in Australia turning over more than $70 billion p.a. – almost 10% of the country’s GDP. Potently, the NGO sector enjoys the highest trust ratings by the public and the average person in the street is more likely to believe an NGO representative than today’s government minister or business leader. In the same period, public scrutiny turned towards business as many people woke up to the frightening power of the corporation, while activist organisations such as Oxfam, Greenpeace and Corporate Watch turned the spotlight on corporate corpulence. The legal sector increased penalties for misconduct and reached behind the corporate veil to prosecute directors for dereliction of their fiduciary and social duties. In the United States, Federal

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Sentencing Guidelines were enacted giving regulators powers to prosecute unethical corporate acts. In Europe, codification of the EU treaties into a draft constitution put business on notice that it could no longer stand outside the gates of civil society while enjoying the benefits it derived from that society. Today, ethics in business like ethics outside business, means accepting the accountabilities that arise from all relationships and interrelationships spawned by business activities. It means that business is done in responsible ways so that business promotes human good. This goes much further than business ethics did in the past. It extends beyond the organisation’s walls or factory gates to encompass every aspect of its global footprint – and the complete range of stakeholders with whom it impacts in direct and indirect ways – such as: ▲ its employees – how they go about business and their working conditions ▲ ▲

▲

▲

▲

in other countries; supply chains – an organisation’s local and international supply chain relationships and their social and environmental impacts; damages – accountability for the potential negative impacts of company products on customers, their families and communities – such as the food industry’s contribution to the epidemic of obesity in the West; or the social cost of addiction to alcohol, gambling or cigarette products; human rights – abuses associated with fair trade, globalisation and prices paid in developing countries where raw materials are sourced or products are manufactured; corporate lobbying – activities threatening the integrity of the marketplace and political stability that can distort free and fair participation in global business transactions; human interdependencies – where corporations can use their power in collaboration with others, to address the world’s intractable problems including global climate change, global poverty, the promotion of global human rights and issues of intergenerational equity, and to account for them.

What is business ethics? Finding a simple definition of business ethics can be like diving for pearls in a sea of porridge. A useable definition is more than just a convenient coupling of words into a phrase that displays lots of intent but does not signify any intent to act. As Paul Tillich famously said: ‘Ethics is not a subject, it’s a life put to the test in a thousand daily moments.’ (Paul Tillich: An Appraisal, by J. Heywood Thomas; Westminster, 1963)

9

10

C HAPTER O NE

Often people use the terms ‘ethics’ and ‘morality’ interchangeably; they are not the same thing. Ethics is a much larger area of study that includes the study of morality and standards of a society, and how people decide what is right and wrong. Ethics is about considering possible actions and therefore possible consequences, while morality is about behaving according to a set of pre-agreed rules. Ethics refers to the debate, while morality describes how judgements are made.

Ethical versus moral perspectives Is it fair to cause suffering to animals? Do they have innate rights? Is it fair to use animals in medical research? Is it fair to use them for cosmetic testing? What is the difference? These are typical of the questions which comprise the ethical debate on the nature of our relationships with animals. Depending on the moral framework chosen, people will respond quite differently. For example, from a utilitarian or consequential moral framework, you might decide that by using animals in medical trails you are potentially saving the lives of humans; therefore that sacrifice may be worth it. However, if you use a moral framework that promotes an animal rights perspective, you might disagree and defend your conclusion by arguing that animals too have inalienable rights to be protected from unnecessary harm. If you come from a Buddhist, Confucian, Hindu or Islamic tradition your conclusions and answers might be different again to those influenced by Judeo-Christian backgrounds.

Ethics seeks to evaluate the moral standards used by different societies, or within a society at a certain point of time, how these standards are arrived at and then justified. We engage in ethical debate when we evaluate our socialised moral standards and compare them with decision-making frameworks of others, such as Buddhism, Islam, Taoism or Judaism. Business ethics evaluates the behavioural standards promoted by organisations internally with corporate culture and employee relations, and externally in their influences on marketplace dynamics, host societies and increasingly, the natural environment. The main ethical frameworks we use are still those that we have inherited from ancient philosophers. These obviously pre-date the development and expansion of the modern corporation and business struggles to adapt them to 21st Century behaviour, decision making, strategies and commercial activities. Ethics is complex and probably always will be. While many attempt to make ethics universal and objective, a wide range of different beliefs obviously remains about how we should

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

behave towards each other, as well as how others should behave towards us. There is no clear agreement on what constitutes ethical behaviour in a business context; however there is increasing pressure to develop and promote a modern-day model of shared understanding and commitment to ethical business practices.

Moral frameworks Immanuel Kant (1724 –1804) argued that there are certain moral rights and duties that all human beings possess and that requires that everyone be treated as a free person equal to everyone else. Kant referred to this moral principle as the categorical imperative, that is, everyone has a moral right to such treatment, and everyone has the correlative duty to treat others in this way. Jeremy Bentham (1748 –1832) and John Stuart Mill (1806 –1873) were the two most notable advocates for the utilitarian principle. This principle focuses on the consequences of actions and morally good actions are seen as those that promote the best consequence for the greatest number of people. Utilitarianism holds that the right action is the action whose net benefits are greatest by comparison to the net benefits of all other possible alternatives Aristotle (384 –322 BC) argued that what distinguishes humans from all other creatures is the ability to reason, and so the distinguishing purpose of human beings is to exercise reason in all actions. The moral action here revolves around identifying actions that will satisfy the dictates of individual conscience. Corporate whistleblowers who expose illegal and unethical activities are often found to have acted on their conscience. Carol Gilligan (1936–present) has highlighted how many females, as well as sensitive males, can make decisions based on their feelings and in consideration of what they perceive to be the needs of others – so that ethical decisions are made in a relationship context rather than independently (In a different voice: psychological theory and women’s development. Cambridge, MA: Harvard University Press, 1982). Gilligan suggests that women have been socialised into a sense of responsibility and compassion that can lead them to make decisions about what is right and wrong from a care perspective, both in caring for oneself and others. This results in a different way of being in the world. In the female world, individuals and organisations are no longer seen as autonomous and independent of each other but are Continued

11

12

C HAPTER O NE

interdependent and this interdependence brings responsibilities and accountabilities to each other. From this perspective, partiality should be shown to those close to us or those in need and an ethic of care; caring for people underpins how moral decisions get made. This can be contrasted with an impersonal impartial approach, for example, of utilitarianism.

For most of us at work, there is insufficient time to calibrate the various schools of philosophical thought that have contributed to these different ethical perspectives. Practical and easily understood concepts are being sought that can be applied in day-to-day situations. We provide some concepts here, with the caveat that these approaches and definitions cannot be absolute – what might be seen as acceptable business practice today may change with changing societal values to become unethical business practice tomorrow. The appreciation and understanding of evolving societal values, and their impact on business, will continue to shape and define priorities in the business ethics debate. There are no absolute truths or eternal answers – only processes for creating the human conversations that precede any descriptions of what it is to be ethical. That is why we believe that the most insightful and accurate definition of management is that it is essentially about the ‘management of meaning’. The role of manager as facilitator is nowhere more vital than in facilitating conversations about how ethical challenges can be met, and how the organisation can act in accordance with the values and principles it states, for the benefit of all stakeholders.

‘Meaning’ in a business context is the complexity of the external environment and the intricacy of human relationships inside the organisation. Employees need to understand what the rules are, how and why they are changing and what their role is in the three key factors of organisational success: ▲ why the organisation exists – its purpose; ▲ how the organisation succeeds – its principles and values; and ▲ how people should be managed – its systems and internal culture that underpins its success formula. (see also: Dana Zohar and Ian Marshall’s Spiritual Intelligence: the Ultimate Intelligence, Bloomsbury, London 2000)

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Since most people first approach business ethics from the perspective of morality, then argue that morality and ethics are the same thing, this is a good place to begin in building a contemporary definition of business ethics.

EXERCISE Leadership training workshops – frequently asked questions ▲ Is there such a thing as innate ‘human nature’ or is it simply people internalising external moral codes? Are human beings innately bad or innately good? Are there behaviours that are universally condemned as bad? If so, what are they? ▲ What is the relationship between ethics, morality and the law? ▲ Do others have the right to define what is ethical for me; if so why? ▲ If animals are injected with human genes, at what point do they have rights? ▲ Is there such a thing as human rights? Free will? Universal truth? ▲ Why should people consider the needs of others? ▲ What is the ethical dimension to: genetic research; private–public partnerships; entering developing markets and exploiting the earth’s natural resources?

Personal morality and ethical behaviour The ideas of right and wrong are moral concepts which are often codified and regulated by religious and legal prohibitions. Every society subscribes to a core set of values that sets its moral compass. These then become the ‘unquestioned’ values underpinning acceptable and unacceptable ways of behaving. Moral codes guide how people choose to behave and relate to each other. In Western societies, our moral code rests on equal recognition of other people’s well-being and rights as well as our own. This recognition and the obligations it brings with it extends to each and every member of society, be they CEO or trainee, Queen or pauper, priest or atheist. Morals derive their authority from outside the individual and usually from a higher authority such as society, common law or religion. The Western Christian moral code has evolved from early Christianity, in particular from the Ten Commandments. In Above the Bottom Line (Harcourt Brace 2nd edn, 1994) Solomon points out that even today our moral rules can appear as commands prefixed in terms of what one ‘should’ or ‘ought’ or ‘ought not’ to do. Questions of morality include: ‘What ought I to do?’, ‘What should I value?’ and ‘What sort of person should I become?’. When we describe someone as being ‘amoral’ we are

13

14

C HAPTER O NE

saying that they do not adhere to society’s expected standards of right and wrong or that they do not recognise that such social standards deserve consideration. Fundamental moral principles in Western societies include an unspoken consensus that killing, stealing, cheating and lying are unacceptable ways of behaving and that people of ‘good’ character do not engage in these activities. Many of us are guided by the principle that we treat others as we would like them to treat us, the so-called ‘Golden Rule’. The principle of mutuality that underlines the golden rule can be found in most religions around the world.

Principle of mutuality This principle seeks to make explicit our interdependence with others and demands that we consider the needs of others also in making choices about how we might behave. The almost universal idea that the right thing to do is to ‘Do what is good for you with the least possible harm to others’* falls under the principle of mutuality. *Rousseau quoted in Ethics & Corporate Governance by R.D. Francis, UNSW Press, 2000

Being ethical as opposed to ‘moral’ is essentially about accepting our interdependence with each other and taking each other’s needs into consideration before acting. At first glance, this might seem a very loose definition, grating on those who feel more comfortable with the more certain term ‘moral’. However, in a secular society like Australia – with its added dimension of multiculturalism – the notion that one set of morals will sit comfortably within a diverse range of cultures and religions creates tension in itself. If you try to apply this unwritten or unspoken prescriptive moral code to the workplace, you create the potential for a disastrous mismatch of ideals and values. At best these can lead to confusion. At worst it can descend into anarchy as diverse workplace members subscribing to differing moral standards of behaviour make value judgements about each other based on conflicting moral frameworks. There is an inherent tension between the organisation as a collection of people who come together for a common purpose and the individuals who make up that organisation. Recent political and social history in Australia points to a greater societal emphasis on personal responsibility. Notions of ‘mutual obligation’, ‘from welfare to work’ and the need to take ‘personal responsibility’ for our own circumstances sit at odds with the trend towards team-based organisational structures and organisations becoming virtual communities.

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Personal responsibility ‘Anglo’ economies have moved away from government intervention, particularly from providing welfare services to a culture of self-reliance where individuals self-insure and self-educate. In the 1980’s, this was epitomised by the UK Thatcher Government’s emphasis on an enterprise society full of enterprising individuals. It began with selling Council provided houses and moved on to deregulating industry. This new government orientation imposes much greater stress on the individual and their need to contribute to the economy and society. This also changes the focus towards individual self-actualisation and personal responsibility with accountability to make an equal and individual contribution to the development of society and the economy.

With ‘personal responsibility’ we cannot separate the relationship between who we are at work and home and what our workplace presents itself to be to the outside world. ‘Mutual obligation’ does not allow for the existence of two parallel paradigms between work and private life. However, individualism and collectivism are mutually exclusive when it comes to the organisation – at work we are all encouraged to suppress the individual wants needs and aspirations to those of the corporation.

Individualism versus collectivism Societies such as the USA and Australia are also characterised by low government intervention, with emphasis on the individual taking responsibility for their own welfare. Government restricts itself to the provision of safety nets for those who cannot afford to look after themselves. The underlying belief of individualism is that if the individual prospers and is industrious then all of society will similarly prosper. In contrast collectivism – as characterised by China today, by Indigenous communities and until recently by Russia and Eastern Bloc countries – promotes the welfare of the community first and the individual second. Here, government plays a much greater role in deciding distribution and access to goods and services. The underlying belief here is that if society prospers then the individual will prosper too.

15

16

C HAPTER O NE

Organisational ‘Vision’, ‘Mission’ and ‘Values’ are ideal states where individual needs are subjugated to the needs of the collective. High performing organisations align personal values with their organisational values and take a bottom up approach to values creation. However, in our experience large organisations are often characterised by high turnover at the top. Incoming executives have little ownership of inherited vision, mission and values. Thus rather than being actively managed, vision, mission and values become dysfunctional artefacts of organisational culture instead of their ethical compass. In most cases, managing collectivism in organisations depends on an ability to manage the tension between self-interest and what is good for the group or community in which we live or work. If we do not follow moral rules, or we do what we feel is not right (immoral?), we feel guilty. Our conscience haunts us and we dislike ourselves. Mostly, others define us by what we do rather than by what we talk about. The psychological foundation of our personal value system means that most of us have a well-developed sense of morals. We do not refrain from lying, cheating or stealing simply because we are afraid of breaking laws; we refrain because our personal value system tells us that truth, honesty and integrity are the ‘right’ things to do. Morality, or being a ‘good’ person, is important for our identity and sense of well being, for the welfare of others and the benefit of our community.

Personal values versus organisational culture Cultures have been defined in many ways but the simplest and most common is the sum of the values of those who make up the organisation. There is a nexus, an intimate relationship, between an organisation’s espoused values and the capacity of organisational members to implement those values on behalf of the organisation. Individuals bring personal values into the organisation when they join it. These may or may not align with the espoused values of the organisation. The first challenge of organisational management therefore is to promote an alignment of these values so, at the very least, employees know when and where they must use the organisation’s values. This is particularly important when they are making decisions on behalf of the organisation – as its reputation is publicly vulnerable to the impact of such decisions.

At times in work situations we know certain organisational behaviours do not reflect our own values, yet we find ourselves ignoring these contradictions. Some people excuse such contradictions because they believe that there is one

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

set of rules for their working life and another for their personal life. For others, these inconsistencies exist because they feel constrained by their work situation and believe they have no choice but to act in a certain way. It is this perceived conflict between personal and organisational values – and the lack of understanding around where and when each set of values takes priority – that has led to much confusion in how ethical issues should be addressed at work. For some, such confusion also gives rise to the excuse that ethics are totally subjective and therefore relative and no one has the right to tell us or others how to behave. Our moral rules guide our actions and tell us what to do and what not to do. Unfortunately however, there is no one website or reference book where you can go to consult a comprehensive list of what is considered morally right and wrong. Philosophers have pondered long and hard about how people might define right and wrong and have advocated for three major frameworks – rights, consequences and conscience – that individuals might apply in deciding how to act: ▲ a consideration of the rights and the intentions of those involved; ▲ the consequences of our actions; and ▲ how our conscience dictates what we should do.

These three ethical frameworks have survived the test of time and have been elaborated upon by later scholars; their basic principles still serve as the foundation of ethical analysis today. To these three dominant frameworks, feminist writers such as Carol Gilligan have added a fourth framework championing ▲ an ethic of care

as a way of understanding in particular feminine approaches to ethical problem solving. This ‘care’ framework is also being advocated implicitly by the new business philosophies of corporate social responsibility (CSR), corporate citizenship and sustainability. We will discuss the ethic of care in more detail in Chapter 7. The work of these moral theorists tells us that the ethical debate encompasses different moral perspectives and that there is no one universal truth. Our postmodern era is characterised by ethical uncertainties compounded as technological breakthroughs present us with profound choices about how we

17

18

C HAPTER O NE

as humans wish to evolve. Modern researchers are now emphasising the influence of situation and context in shaping personal and corporate accountability and behaviour choices, rather moral codes. Today, we recognise that the decisions people make can be quite different, depending on their specific context and perspective adopted. The dynamic and often very personal aspects of life – and how we make meaning individually and collectively – make ethics the complex debate it is. This complexity precludes any quick and easy fix to the challenges we face. For business people, who are time poor and who like certainty, these various approaches to ethical decision-making are challenging; they are not interchangeable and more often seem to complement rather than contradict each other. One ethical framework will be seen as better than another when it is found to be supported by reasons that seem the most appropriate to the situation at hand. The ability to demonstrate an understanding of context, and that considerable thought about possible actions and consequences has informed the decision made, is a necessary component of today’s defence against accusations of acting unethically.

Ethical frameworks 1

Ethic of rights – gives priority to individual’s innate worth and freedom of conscience

2

Ethic of utility/consequences – gives priority to the greatest happiness for the greatest number (utilitarianism)

3

Ethic of virtue – promotes good character and what a reasonable person would do

4

Ethic of care – gives priority to accountabilities arising from our interdependencies with others; the welfare of the people concerned is seen as more important than the principle at stake

The limitation of the traditional philosophical approach is that it seeks to supply rules and principles for all situations and does not offer the decision-maker the flexibility to accommodate the particular, unique or dynamic aspects of diverse situations. In a world where changing social expectations and values determine what is ethical, ‘right’ or even ‘acceptable’ behaviour, trying to apply a prescriptive approach in a dynamic context does not work. Rather than absolutes, business leaders and managers are often faced with several permutations of the same theme.

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Black and white options have turned to multiple shades of grey – what is needed today is a toolbox of ethical frameworks and decision making aids to guide ongoing decision-making.

An organisational perspective The famous business cases presented below demonstrate how different contexts and perspectives can lead to different outcomes that are then judged to be good or bad by external stakeholders.

CASE STUDIES Different ethical frameworks for different companies Interface Inc. Interface Inc., manufacturer of recycled carpets, takes a virtue approach to corporate decision making to ensure its commercial decisions are not made at the expense of the natural environment. Their vision for business success includes manufacturing from recycled products; factories and offices using power from renewable sources; producing zero water waste and acting as a role model for others to show that business can be environmentally friendly. Between 1994 and 1997 its profits soared and at the same time its US operations saved $50 million in reduced material costs, reduced energy costs and reduced waste alone. In Australia, its Picton plant in NSW saved $19.4 million from waste reduction over 10 years; reduced greenhouse gas emissions by 33% since 1999 and reduced water use by 53%. Interface has introduced the first and only ‘climate neutral’ floor covering in the world which means all the greenhouse gas emissions that might have been generated during its manufacture have been eliminated by using renewable energy or otherwise offset. Johnson & Johnson Johnson & Johnson’s (J&J) promotes an ‘ethic of care’ decision-making framework throughout its operations. Johnson & Johnson’s response to its Tylenol product tampering and extortion threat in 1986 demonstrated this commitment to customer safety as a key company value. J&J’s transparency and proactive response when arsenic turned up in Tylenol capsules, earned the organisational international kudos. Immediately on Continued

19

20

C HAPTER O NE

learning of the product contamination and accompanying extortion threats, at the cost of millions of dollars, the Company pulled the product from the shelves not just of the state where the blackmailers struck but in every state in the US. The company said it was not prepared to risk the lives of any of its customers and it did not return the product to the shelves again until it had developed new tamper proof packaging. However, within five months Tylenol had recaptured 70% of its market share and the fact this went on to improve over time showed that the company had succeeded in preserving the long-term value of the brand. The company continues to top US surveys as one of the most respected corporations in America. Levi Strauss & Co. Levi Strauss is another global corporation that is not just successful but is highly respected worldwide because of its ethical stance. It promotes a ‘rights’ approach to its business ethical decision making. It has a history of refusing to invest in countries with poor human rights records despite having over half of its products manufactured outside its home base. In operating in over 60 countries worldwide it seeks to promote a core set of values worldwide. It severed all subcontractor relationships in Burma due to human rights abuses and suspended its business dealings in Peru because of the dangers posed to employees from terrorist activity. When this subsided, Levi lifted the Peru suspension. In May 1993 Levi Strauss announced it would phase out its operations in China over several years, because it could not condone existing employee working conditions and human rights policies. In all, the company has severed its relationship with 30 business partners and demanded changes from 120 others in various countries. Ford Pinto Some business analysts believe that the best way of evaluating the ethical dimension of a business decision is by relying on a utilitarian cost–benefit analysis. Taking a utilitarian approach ‘the right thing to do’ is the action that will produce the greatest net benefits to society or impose the lowest net costs. Such was the approach taken by car manufacturer Ford America back in the 1960’s when its designers made the decision to go ahead with the production of the Ford Pinto car when they were forewarned that the location of its gas tank was dangerous if the car was involved in a collision.

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Ford managers decided to go ahead with its production because it met all the legal requirements and according to an internal ‘cost–benefit’ analysis the costs of modifying the Pinto would not be balanced by the benefits. A modification that would have added costs of $137 million to the consumer price of the car was weighed against contingent liabilities for customer accident payouts valued at only $49.15million. In the decade that followed it is estimated that at least 60 people died in fiery accidents involving Pintos and at least twice that many suffered severe burns. Ford eventually phased out the Pinto model.

Legal versus Ethical To date, the business world has largely depended on the law to set its ethical course. It is still common for business leaders to say that if their actions meet legal requirements then they must be okay. This is despite the fact that the legal systems in many countries remain underdeveloped and far removed from the democratic principles adhered to in western societies. Even in Western societies, companies which set ethical accountabilities solely on what is legal have been exposed to a public backlash and loss of corporate reputation, when found to be out of step with society’s changing values. Such was the experience of the leisurewear industry: high profile companies such as Nike, Gap and Reebok came under public attack for their association with sweatshop conditions and child labour; while they had flaunted no local laws themselves, their sub-contractors had owned and recruited child labour. In Australia, the media frenzy that accompanied the James Hardy Industry Group’s perceived failure to fund its asbestos claimants adequately, brought home to many Australian Boards the critical dimension of managing relationship obligations beyond legal accountabilities. Legal compliance is only the base line of business ethical accountability. Business ethical integrity is closer to what is sometimes referred to as the spirit of the law. It encapsulates the ideal state that the law is seeking to promote – the higher ground. As such, it encourages the highest possible standards of behaviour, rather than a minimalist compliance orientation to avoid legal prosecution. An ethical perspective has the protection of people and the environment against unnecessary harm and exploitation as its goal. It encompasses notions of accountability and responsibility to others because, as humans, we all have innate rights even if these are not yet spelled out in local laws.

21

22

C HAPTER O NE

Sophisticated concepts such as ‘fair play’, ‘trust’, ‘respect’ and ‘mutual obligation’ are the implicit aspects of ‘professional’ behaviours of everyday business life that fall into the ethical realm. It is often assumed that they do not need to be spelled out in law because the sustainability of the marketplace, the conditions and the well-being of civic life depend on adherence to these standards. It is sometimes forgotten by business that the ultimate purpose of regulation is to protect the market itself – by promoting practices that enable industry to thrive and, at the same time, protect consumers, employees, their living conditions and society in general against commercial exploitation. Mutual benefit is the ultimate goal.

The corporation as an ‘individual’ The marketplace however does enjoy a unique situation in the eyes of the law. Although not a person in itself, business organisations are awarded many of the rights of individual citizens. However, the priority rights accorded to shareholders by today’s commercial governance practices are now being questioned by a global society more cynical of business leaders’ ability to balance what is good for their shareholders with what is also good for society. The success of contemporary movies and documentaries – including The Corporation; Farenheit 9/11; Supersize Me; The Manchurian Candidate and Enron: The Smartest Guys in the Room – reflects the growing concern in society about corporate behaviour, its impact on the environment and society’s wider interests. The relatively new public recognition of the full range of stakeholders impacted by a business’ activities is redefining the scope of accountabilities for many organisations. It points the way to a new era in capitalism already being referred to as ‘stakeholder capitalism’. Although, stakeholder rights have not yet been explicitly enshrined in corporate law, savvy business leaders are changing their success formulas to include the criteria seen as important to opinion leaders of stakeholder groups. Already some 200 major world commercial organisations (WBCCSD 2005 Global Reporters) produce environmental and social impact reports in addition to their annual financial statement. These have been produced in response to external stakeholders’ concerns and account for a wider range of business impacts. These business leaders, concerned to retain their corporate reputations and brand values, do not wait for the law to catch up – they look to changing societal values to set their ethical compass. Anxious to retain public

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

confidence, they refer to their new accountabilities as activities designed to earn and retain their ‘social’ licence to operate. This is over and above their ‘legal’ licence as corporate ‘individuals’.

IAG Insurance IAG Insurance is publicly recognised in Australia as one of the leaders in social and environmental accountability and is regarded therefore as a good corporate citizen. It is not surprising to learn that CEO Mike Hawker tells a very different story about why IAG exists to the typical shareholder story. Mike explains that IAG exists ‘to pay claims’ and if it does that well, it knows business will follow. He points out that insurance companies exist to help people when they are in trouble. They provide reassurance that if disaster strikes, people have some security to fall back on and they will get their policies paid in full. Shareholders too are important because they contribute capital to expand and develop the range of services available to customers. In return they are paid dividends on these investments and have the expectation of capital growth. But the business exists to satisfy customers needs, and in this instance, to share risks with customers in a mutually rewarding and profitable way.

Ethics in business Ethical behaviour in business is essentially about accepting socially endorsed accountability rather than mechanical compliance to rules which may or may not be morally prescribed or enshrined in law. There is no law that dictates that a large employer organisation need consult its employees or its state or federal government before closing its production facilities or moving these offshore. Yet there is a strong societal consensus that any responsible organisation would do so and not to do so would have serious reputational – and therefore economic – impacts on the business. In business the ethical debate is powerful because, in deciding what is ethical and what is unethical, it also shapes what is perceived as social reality in the future – and therefore the social and commercial landscape for upcoming generations. Such a critical activity demands that businesses and their stakeholders take appropriate measures to inform and skill themselves to participate fully in unfolding decisions about corporate behaviour.

23

24

C HAPTER O NE

Business ethics at one level, therefore, is about responsible business practices as dictated by society at a point in time. Today these include all aspects of manufacturing conditions, research and product development as well as marketing, pricing and distribution. At another level, it is about the quality of the relationships and interrelationships being promoted inside the company and externally between the organisation and its stakeholders. Management is now charged with the responsibility for ensuring that potential adverse impacts are canvassed and minimised and, where there are significant conflicts of interest and differing expectations, that these are resolved in a fair and transparent manner. Commercial organisations are being challenged to see themselves as community assets sharing the same norms and values as the wider society in which they are embedded. Business ethical accountabilities then are seen as a reflection of society’s current values and expectations. In this context an increasing focus on business ethics has emerged and will accelerate, as host societies demand greater transparency from business, and more jealously guard their right to confer or withdraw their social licence to operate. Savvy business leaders like Westpac’s CEO David Morgan, are already adapting their business success formulae to respond to the new needs and accountabilities being asked of business.

Social responsibility at Westpac Our view is that businesses that recognise successfully their social responsibilities tend to benefit in three major ways: they have loyal customers; their employees are motivated and happier working for a good and well-respected company; and the company enjoys more public influence because its views are regarded as credible. Dr David Morgan CEO Westpac CEDA Address 21 August 2000

How do we sustain patterns of development which are socially inclusive and ecologically sustainable in an era of globalization and economic liberalization that is freeing-up markets and increasing the dominance of transnational corporations in global trade, investment and value chains? In Rethinking Business Regulation: From Self-Regulation to Social Control, Peter Utting cautions against broad

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

generalizations about the future trajectory of CSR and corporate accountability. He notes that outcomes are likely to vary considerably in different enterprise, industrial, societal and capitalist settings (paper 15, UNRISD 2000–2005 project Business Responsibility for Sustainable Development ISSN 1020-8216, 2005). Utting concludes that while the corporate accountability movement has amassed considerable momentum, it must address a contradictory macroeconomic environment and confront the major political challenge of overcoming powerful opposition – while building alliances and networks within and across societal groups and regions. Cohesive ethical frameworks across stakeholder networks will therefore emphasise societal values as the new regulators of corporate ethics.

Society’s role in business ‘We have to choose between a global market driven only by calculation of shortterm profit, and one which has a human face. Between a world which condemns a quarter of the human race to starvation and squalor, and one which offers everyone at least a chance of prosperity, in a healthy environment. Between a selfish free-forall in which we ignore the fate of the losers, and a future in which the strong and successful accept their responsibilities, showing global vision and leadership.. I am sure you will make the right choice.’ Kofi Annan, UN Secretary General, Address to World Economic Forum leaders, Davos, 31 January 1999 ‘Business exists to make a profit and the sole purpose of business is to deliver shareholder benefits.’ How often have we heard that said? When the dominant societal view of business was that its major responsibility was to its shareholders only, management had a much simpler job of prioritising activities in line with this goal. Today however, it is increasingly recognised that making a profit is only a goal and not a reason to exist. As many have pointed out, it’s as ridiculous a statement as saying humans live to eat – where the goal of eating is confused with the ultimate purpose of life. Making a profit, like eating, is a requirement for ongoing vitality, but the company’s purpose is about something more challenging and worthy of the amount of human endeavour that is devoted to it. Many in society would now agree that a perspective which argues that ‘shareholder value’ is the sole reason for a company’s existence is unethical. ‘Shareholder value’ denies the web of relationships and resulting accountabilities to stakeholders in which businesses are entangled. It limits obligations to one narrow and

25

26

C HAPTER O NE

increasingly transient stakeholder group, owners of their shares, at the expense of those who give large chunks of their life to the organisation and all those who are impacted in positive or negative ways by its activities. The current focus on business ethics is precisely because an increasing number of people are disillusioned with the ‘shareholder value’ proposition. It is seen to have come adrift from the wider range responsibilities that underpin the ideal of a mutually beneficial relationship between business and society. There is now a discernible shift from seeing business not just as a narrow economic activity but one that has significant social, environmental and ethical impacts - which profoundly shape the types of societies that emerge from its activities. Consequently, there is growing agreement that business has an implicit responsibility to those societies for the behaviour it spawns and the contexts it creates. Regardless of what an individual or an organisation believes about business practices, if society judges it to be unethical, that perception will directly affect the organisation’s ability to achieve its business goals. Business ethics therefore involves taking into account stakeholders’ perceptions of the extent to which the organisation respects their needs, seeks to balance possible conflicting stakeholder interests and recognises the interdependent relationship between economic and societal progress. The organisation is dependent on the goodwill of stakeholders to continue to buy its products, to become its employees, to provide its working capital through investment in shares and to provide it with its legal and social licence to operate. This interdependence is not always made explicit. It is the perceived two-way nature of the relationship between business and its stakeholders that is shaping modern day ethical accountabilities. The true cost of unethical business is immeasurable. Once lost, personal, organisational and societal (e.g., post-war German and Japanese societies) reputations are hard to regain. The costs arising from lost business reputation include: ▲ Societal costs because of the need to impose stronger economic and legal

sanctions on future businesses to inhibit repeat transgressions. ▲ Loss of faith in business management as a profession and widespread

cynicism and mistrust about the business world in general.

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

▲ A destabilisation of societal life because society’s major institution is seen to

have more power over society than accountability to it. ▲ Low employee morale because employees feel let down or tainted by the unethical practices of peers and experience a loss of face with family and friends as pride in their workplace identity is stolen from them. Ultimately, society bears the greatest financial, health and social costs. At its extreme, it is the cost of cleaning up disasters such as the Exxon Valdez oil spill in the Alaska Sound, the Bhopal chemical explosion in India or, Three Mile Island nuclear fallout in New York; it is the cost of dealing with the consequence of industrial products such as asbestos or pharmaceuticals such as thalidomide; it is the cost of cleaning up rivers and streams systematically polluted by unscrupulous mining or manufacturing companies. It is also the social cost of underinvestment in developing countries; it is the cost of putting families back together after major industrial accidents such as BP’s oil explosion in Texas or the Longford gas explosion in Melbourne; the cost of supporting communities when multinationals pull out of regions in search of lower production costs; and the infrastructure investment needed to attract or detract business to particular localities (such as tax breaks to multinational companies from small developing economies). These are the unseen and undiscussed costs associated with supporting a ‘free’ market. If such an investment is needed to provide the platform for business to exist, it is reasonable that society may expect a return on that investment in more than simply economic terms, in the form of responsible corporate citizenship. Conducting business today is somewhat akin to living in a goldfish bowl where multiple stakeholders can watch in real time. We see that society is asking business leaders to manage in three distinct areas: Dimension One: Social and Environmental responsibility and accountability for the organisation’s ecological footprint – reflected in the quality of the company’s impacts on the society it serves and its impact on the natural environment. Social responsibility includes respect for traditional landowners, direct negotiation with affected communities and refusal to transact with corrupt local, state and national governments – as well as ensuring transfer of wealth and skills back into local communities. Environmental responsibility today extends well beyond waste management and pollution control. For ecologically responsible corporations it includes product stewardship, environmental restoration where damage has occurred, environmental conservation, sustainable business practices and a new identity for business as being a problem solver responding to society’s pressing environmental and social concerns.

27

28

C HAPTER O NE

Dimension Two: Internal and External corporate accountability – reflected in the quality of relationships that characterise how business gets done internally and externally. Internally, the focus is on the organisation’s efforts to assist employees manage potential conflicts between personal and organisational values. It extends to work–life balance strategies, employee assistance programs, employee share ownership schemes, education funds, stewardship of superannuation and savings schemes, mentoring and coaching programs, fitness programs, child care and a host of ‘added value’ services made available to employees as critical stakeholders in the enterprise. Externally, it’s an accountability that extends to the marketplace; to customers, suppliers, industry peers and host societies to ensure that their needs are taken into consideration. Dimension Three: Personal and Collective responsibility and accountability – for promoting personal and industry accountability to observe agreed standards that stay tuned to societal standards. This means reflection – turning inwards to clarify the core, priority values that we will not compromise – and those we are willing to champion on behalf of others who are unable to do so for themselves. It means accepting responsibility that we can and do impact on others with each decision that we make. It involves recognising our worldviews and prejudices, helping members recognise their own, then move beyond them together. This will help to form common ethical standards and invest in the skills to act accountably. As individuals we cannot abrogate our own personal accountabilities to agreed ethical standards; as we act, we may also hold others accountable.

EXERCISE Any situation, problem or opportunity that has the potential to impact on others in significant ways can be considered to have an ethical dimension. An ethical strategy is required to remediate, minimise and eventually eradicate harmful impacts. Ethical issues are not always easy to identify. They tend to revolve around the following situations: ▲ ▲ ▲ ▲ ▲

Potential harm to others Potential conflicts of interest Potential breach of duty of care Dishonesty and fairness Relationship responsibilities and accountabilities

W HO

DECIDES WHAT IS ETHICAL ?

S OCIETY ,

ORGANISATIONS OR INDIVIDUALS ?

Questionnaire 1 2 3 4

Look at the examples of behaviours and dilemmas listed below. Identify your response and summarise your considerations in writing. Explain which moral framework you used to reach your decision. Identify an ethical strategy to address the ethical issues raised by each situation.

Board dilemma ▲ Your company provides local employment in a country which offers the cheapest manufacturing conditions and therefore potentially increased shareholder profits. The country has a deplorable record of human rights. What are the ethical issues which guide your decisions? What ethical strategy might be developed to address the concerned raised?

Organisational dilemma ▲ The organisation’s short term interest has been found to be contrary to the individual customer, supplier or employee’s interests; what are the ethical issues here? What ethical strategy might be developed here to address these issues?

Employee dilemmas ▲ Do you have a responsibility to expose colleagues who are taking drugs at work? What are the issues here and what might be your ethical strategy to address these? ▲ What is the ethical dimension of drink driving or leaving the scene of an accident? What moral framework are you operating from in deciding how to act?

Personal dilemmas Use the space below to record your own concerns about how you should behave in certain contexts in your organisation: ▲ ▲ ▲

29

30

C HAPTER O NE

Answers to Questionnaire Board dilemma

Organisational dilemma

Employee dilemmas

Personal dilemmas

CC H H AA PP TT EE RR 22

CHANGING

SOCIETAL VALUES

The rise of stakeholder capitalism All truth passes through three stages First it is ridiculed Second it is opposed Third it is accepted as being self-evident Arthur Schopenhauer (1788 – 1860)

Social change The history of opposition to the anti-slavery movement, the women’s suffragette movement, the environmental movement, animal rights and more recently the corporate social responsibility (CSR) movement demonstrates how demands for macro social change are frequently met with fierce opposition – from those who see such demands as inherently threatening the status quo. But the abolition of slavery, the emancipation of women and the eradication of wholesale cruelty to animals prove that resistance to change of itself is no justification for holding back the tide of reform. There are hundreds more examples where progress has been hindered but not stopped by those who feel threatened by change. We see many parallels in the faltering but inexorable progress of accountability for explicit management of the ethical dimension of business. Contemporary arguments that ‘you can’t teach ethics’, that ‘ethics doesn’t belong in business’ or that corporate social responsibility is not a

31

32

C HAPTER T WO

legitimate ‘business accountability’ need to be seen only as elements of the historical context of resistance to change. As society demands higher standards of performance from business, eventually there will be acceptance, albeit grudging at first, of the inevitability of change to accountability for business ethics, just as there has been in the other important realms of social progress mentioned above. Business has had to adapt to a host of changing social standards over the past 40 years. Safety in manufacturing and engineering is now accepted as an essential element of workplace culture; equality of opportunity and occupational health and safety are now the responsibility of all managers and Boards; environmental responsibility has been embraced as the essential cost of doing business in sensitive industries. None of these were enthusiastically embraced in the early days; all had to be ‘earned’ as society powerfully made the case for intervention in business processes. They only became universally adopted when business recognised that there was a ‘win–win’, where social legitimacy could be gained while enhancing profits and not at the cost of them. So, too, will be the case with business ethics. Ethical management will inevitably become an essential part of doing business in an increasingly cynical world.

Ethics and profits From Adam Smith (An Inquiry into the Nature and Causes of the Wealth of Nations, Edinburgh, 1776) onwards the health of the capitalist system has been known to depend on business being capable of self-regulation, promoting a system that is mutually beneficial for society as well as business owners. This means that business leaders need to promote a sense of fairness to all those involved, which will inhibit the excesses of human nature, and ensure that the pursuit of personal wealth does not come at the expense of the public good. According to US Institute for Policy Studies (IPS, 2004) the degree of concentration of the world’s 475 billionaires is now worth the combined income of the poorest 50% of the world’s population. This suggests that Adam Smith’s original vision that everyone would benefit from a free market economy has not been realised. Instead, there is an increasing polarisation of wealth between countries, within countries and within the corporation itself. In 2004 American CEO’s were paid an average of 4,589 times more than US production workers in 2000, up from 104 times in 1991 (www.executiveexcess.com). The vitality of the free market system has always depended on visionary leaders with the strength of character to balance the sometimes competing stakeholder interests. Somehow in the hurly burly of the modern marketplace, this traditional ethical dimension of governance appears to have fallen out of fashion.

C HANGING

SOCIETAL VALUES

We now have a situation where lobbying budgets in the US are greater than the GDP of several nations and there are over 100 lobbyists per Member of Congress. Futurist Patrick Dixon calculates that a $5bn a year lobbying industry has come into existence designed to influence new laws, change existing ones, limit corporate liability and decide who gets to be the political leader (Building a Better Business – by Building a Better World, Profile Books, London, 2005). The unsustainability of capitalism in its current form is demonstrated by intensifying global protests exposing the inadequacy of global bodies such as the WTO, IMF and the World Bank unfairly representing the diverse needs and expectations of civil society (see www.globalissues.org). Public backlash against the spate of world-wide corporate disasters over the last 10 years has focused public attention on the incapacity of current corporate governance regulations to hold companies adequately accountable for their societal impacts. Enron’s collapse (see Enron: the Smartest Guys in the Room, by Bethany McLean and Peter Elkin, 2005) and with it the disappearance of an American generation’s superannuation savings, brought home to many how the corporation enjoys all the privileges of citizenship without the duties and responsibilities citizenship brings. Many argue that corporate law as it stands today marginalises ethical, social and environmental impacts as luxury concerns. Many company directors assumed such concerns to be beyond their fiduciary duties to shareholders and therefore discretionary concerns. This narrow focus on shareholder interests encourages the externalisation of corporate costs into society. Society must then fund environmental and social remediation in the wake of poor business practices, while the profits reaped go into the coffers of a precious few (see The Corporation (2003) by Mark Achbar, Jennifer Abbott and Joel Bakan – www.thecorporation.com). Traditionally, the ethical dimension has existed as the depth dimension of organisational life surfacing in times of crisis and challenging Boards with accountabilities that were typically taken for granted until exposed by the media as socially unacceptable corporate conduct. Unethical business practices are increasingly exposing the culture in the Boardroom and the organisation to scrutiny. Examples include the culture of insider greed that characterised the collapse of Australian Bond and Quintex corporations, the largesse exposed in the One.Tel and HIH corporate collapses and public boardroom brawling that has characterised the NRMA in recent years. These experiences have brought home to many Australian boards that ethics is not something that can be taken for granted and that this accountability lies as much with Board members as it does with organisational members. At Oxfam Australia’s Business Ethics Forum (July 2004), Justice Neville Owen (Chair of the HIH Inquiry) said:

33

34

C HAPTER T WO

Those who control the destiny of a corporation do so not primarily for their own benefit but rather for the benefit of a wide range of groups and individuals having an interest in the affairs of the corporation. The ever-lengthening shadow of the corporation has brought with it calls for the Board to be accountable for its complete span of influence including: ▲ ▲ ▲ ▲ ▲

organisational behaviour standards that are promoted under its watch; its corporate environmental footprint; the ethical dimension of its capital raising chain; its global supply chain; and its product life cycle.

The accountabilities arising out of these global relationships are mirrored by similar accountabilities at a more local and national level. David Korten’s research (When Corporations Rule the World, 2nd edn, Kumarian Press, 2001) highlights how many major corporations have now swapped their economic power for increasing political power so that today, business leaders are no longer simply company directors; many are leaders of the most powerful institutions in the modern world. For example Dick Cheny, the current Vice President of the US is under investigation for his role in the allocation of lucrative defence contracts in Iraq to his ex-company Halliburton. Cheny is also under investigation for what he knew in advance of the collapse of Enron. There is a new public expectation that corporations will accept a greater role in promoting societal interests. Corporate value statements are the new company ledgers against which the integrity of the organisation will be accounted in this world order. The fundamental question asked of Boards is whether the corporation’s values and behaviours have been set from the top. As employees, consumers and institutional investors seek to associate with companies seen to be doing the right thing, the values promoted by organisational culture have become the public symbol of responsible business. In stepping up to this challenge, Boards of multinational corporations have been the first to wake up to the necessity of actively managing their organisational cultures to ensure ethical behaviour and to safeguard corporate reputations. However, for the majority of organisations, spared from the blowtorch of international public opinion, it appears to be very much a case of business as usual; their Boards seem either unwilling or unable to change and work to restore confidence in their business integrity. A 2002 world survey by Environics International showed that of 47,000 adults who were polled across 47 countries, 48% have little or no trust in large companies, with only 39% having

C HANGING

SOCIETAL VALUES

some trust in global corporations. Business leaders, as a collective, have yet to respond to this vote of no confidence. To restore trust in corporations, 21st Century society has deemed that organisational ethics is an important dimension of business life and that its leaders should be held accountable for how profits are made. There is also the ethical accountability inherent in what products and services the business engages in or produces. In a ‘24/7’ networked world, we are all aware that organisational products have the potential to harm, maim and even kill employees and customers – be it through shoddy manufacturing processes or the nature of the product – including fast foods, saturated fats, sugar, preservatives, artificial colourings, tobacco, alcohol, pharmaceuticals, pesticides, explosives and armaments. We also know that as companies engage in reengineering processes, or move their production facilities around the globe in search of financial incentives and low labour rates, they can remove the livelihoods of thousands of people – with significant social impacts in the communities left behind. All these activities are included on the modern day business ethics score card. Like our depleting natural resources, societal trust is also dwindling. At the macro level concerned societal leaders are debating cooperative, sustainable alternatives to the current unsustainability of the free market system. Through ethical practice, the successful modern company increasingly operates at the convergence of economic and social imperatives. Business leaders who attempt to hide behind the corporate veil of ‘if it’s legal, it’s okay’ are not doing the right thing by the companies they lead. Governance, like organisational culture, is a dynamic system that defies prescriptive definition by statute or even case law. To quote Justice Owen again: Corporate governance standards must be dynamic and capable of evolving to meet changing conditions … strict adherance to a published best practice model will lead to it becoming as blunt an instrument … as legislation can be. (Oxfam Business Ethics Forum, 2004) If governance is not based on sound individual, corporate and social ethics it will fail. Businesses operate in different environments around the world; each company needs to develop a governance system that best meets its unique needs while being mindful of its interdependence with the wider society. This will be underpinned with a monitoring system that ensures the organisation is responsive to wider environmental challenges and changes.

35

36

C HAPTER T WO

The global marketplace, in which all businesses now compete, demands that management nurtures a new organisational capability that requires higher level systems thinking and accountability. The whole being greater than the sum of its parts, people in organisations, and stakeholders beyond the organisation, need to be organised in such a way that the business leverages off these interdependencies, and the collective energy generated, to drive enhanced business performance. Global transparency and interconnectedness demand a new type of organisational culture characterised by an ‘and’ orientation rather than the old dualities of ‘either/or’. The speed with which new technologies can challenge and change the status quo makes this more urgent. This is particularly the case with company reputations, where inappropriate behaviour by one part can cause reputation loss or, at worst, collapse of the entire corporation. A classic illustration of this is the UK’s Barings Bank, where the organisational culture of the host organisation supported a rogue trader in a remote location, who gambled the organisation’s resources away unchecked. Eventually his losses exceeded the capacity of the London-based headquarters to recover. A similar fate befell the global accounting firm Andersen, where the culture flourishing in a US context effectively destroyed it global reputation – despite the best intentions and integrity of its thousands of diligent employees around the world. The speed of Andersen’s collapse sent the message that business ethics impacts directly on the bottom line to Boardrooms around the world. The Johnson & Johnson Corporation (J&J) brand has been voted one of the world’s most respected companies for several years (www.reputationinstitute.com). It tops polls on both reputation and financial performance by no mere coincidence. It demonstrates that managing organisational performance to ensure positive social as well as economic impacts drives higher performances in all three areas. Johnson & Johnson goes to great lengths to nurture and preserve its distinctive organisational culture. It is an inclusive culture where the parts are held together by a commitment to a set of agreed company values that transcend different locations and local contexts to unite diverse workforces around the J&J Credo, its universal Vision and Values Statement. This clearly defines ‘how things happen here’. It is a remarkable company manifesto and tribute to the power and potential of Boards to set both an ethical and sustainable climate that sees the organisation, its people and society flourish. It has withstood the test of time and deserves to be reviewed by all those who continue to cling to the outdated idea that either shareholder or stakeholder interests come first, or that one comes at the expense of the other. Not only does the J&J Credo recognise the

C HANGING

37

SOCIETAL VALUES

needs of its multiple stakeholders but also it spells out the interconnectedness of each of the stakeholder groups as well as the wider societal relationships.

The Johnson & Johnson Credo We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfil their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens - support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit.

Continued

38

C HAPTER T WO

We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.

Similar to J&J, global corporations as diverse as Levi Strauss, Merck Pharmaceuticals, Cadburys, BP, BHP, Toyota and 3M have aligned their business success formulae with societal progress – and developed business principles to realise that vision. In Chapter 6 (Becoming comfortable with the ethical dimension) we highlight the range of organisational protocols that have evolved to address and respond to stakeholder concerns.

Business and society A strong, positive relationship between the employee and the organisation is often a good indicator of the quality of the relationship between the organisation and society. Organisational culture is therefore set to play a major role in determining organisational reputations. The quality of the relationship between the employee, the organisation and wider society has never been more important and the interdependencies more visible. A truism in business states that ‘what gets measured gets managed’. The difficulty with business ethics is that, until now, there has been an absence of systematic Board measurement of the ethical dimension of organisational life. Management is rarely held to account at Board level for the cultural and ethical health of the organisation. While there are well developed measurements and regular accountabilities for other important dynamics of day-to-day business activities – monthly profit and loss statements; cash flow statements; annual compliance reviews; occupational health and safety records; staff and stock turnover – there is still no metric to reflect the ethical and cultural dimensions. Progressive organisations conduct regular employee opinion surveys but many of these are predetermined by the questions asked. Often they become ‘feel

C HANGING

SOCIETAL VALUES

good’ exercises doomed to remain part of the background wallpaper, rarely acted upon, with limited capacity to reflect the dynamic nature of cultural issues. The advent of ‘Social Reporting’ as an addendum or companion piece to the Annual Report has fared better; the increasing incidence of social reporting amongst global corporations is at least setting a benchmark for the transnationals and their local subsidiaries in cultural management. But what about Australia’s own corporations? Who sets the benchmarks for ethical conduct and reporting in our own backyard? In the wake of corporate scandals over the last decade, new text books on corporate governance have multiplied. Yet while directors’ fiduciary responsibilities still hold pride of place in them, these governance experts continue to recoil from tackling the ethical agenda. When in March 2005 the CEO of America’s largest aerospace company, Boeing, was summarily dismissed by his Board because he was seen to have ‘impaired his ability to lead the company’, many Australian corporate leaders condemned the action as inappropriate. They failed to recognise that his dismissal was not about his extramarital affair or his personal life, but about his professional conduct and the ethical tone he was setting for other organisational members. His failing was that he had transgressed Boeing’s code of ethics and code of conduct by not disclosing an affair with one of his executives. By his actions he was effectively flouting the very code of conduct he had commissioned and the standards he was demanding his employees follow. As discussed earlier, the notion of private vice and public virtue is no longer tenable. Organisational leaders have stewardship of the corporate values and now are expected to demonstrate integrity with them. Board behaviour has never been more publicly scrutinised or expectations about ‘Tone at the top’ more publicly aired. It seems that the Board’s choice of CEO will remain the loudest statement the Board makes about how it intends to set the ethical tone of it organisation. Organisational leaders and employees develop their organisational culture and its ethical dimension in response to particular situations. Every organisation implicitly or explicitly models an ethical stance, which is communicated to employees and stakeholders in the actions of management and in the reward, recognition and recruitment systems used by the organisation. An organisation safeguards the quality of its business relationships with all its stakeholders, building trust and social capital in the organisation by ensuring its ethical standards are consistent and meeting their members’ needs. If board members, managers or employees ignore the ethical side of business, the boundaries for how people should behave are not set. Each organisational member is then left to decide for themselves how far they can go to get the

39

40

C HAPTER T WO

business. How far is too far? The executives of Enron, HIH, One.Tel and Barings Bank certainly didn’t know and in the short term it cost these organisations the personal reputations of the executives and many of the board members. It also cost tens of thousands of employees their life savings and stock built up in education funds and superannuation schemes. In the final analysis, it ended up costing the organisations their very existence. And the damage didn’t stop there. These high profile corporate collapses also de-stabilised the societies in which they were embedded by betraying the trust their host societies had placed in them to protect the public interest. Instead organisations emerged where insider greed and largesse were practiced at the expense of shareholder and other stakeholders interests – where many small ‘mom & pop’ shareholders were adversely impacted by the eventual collapses that are the inevitable outcomes of such unethical practices. Business ethical decision making is a skill enhanced with training and, such training is relevant at each organisational level, including the Boardroom. Typically, the diversity that comes with the recruitment of non-executive Board members, as well as narrow selection criteria where financial or legal skills predominate, leaves many Boards blindsided to changing social dynamics that typically hinder ongoing success. These social skills and sensitivities become particularly important as companies move into third world countries where human rights are not enshrined in law. In situations where extreme poverty exists, the chance to work is seen as a tremendous opportunity to improve household living standards. Working conditions are of much less concern to these people than is the opportunity to earn an income. This can present the organisation with something of a Hobson’s choice when they seek to do business in a developing country. Moral codes differ from country to country and the dilemma for Australian and other Western companies operating in a global economy is how to accommodate these codes while remaining true to the principles that apply in their home country. These are the debates that now belong on the boardroom agenda. Organisational leaders need to spend time identifying the core values that they wish their organisations to stand for. In identifying these values, leaders make more transparent and explicit the types of behaviour expected of all organisational members. Increasingly, these values and behaviours apply to contractors and other partners in the organisation’s business stream. Concerned and influential stakeholder groups, including institutional shareholders, are becoming more attuned to long-term performance issues. They then reflect this through the pressure they bring to bear through their investment power. KPMG Research in 2003 showed that more than 60% of

C HANGING

SOCIETAL VALUES

the top 100 European companies are now encountering higher levels of shareholder activism concerned with issues such as: ▲ ▲ ▲ ▲ ▲

global supply chain conditions; the company’s environmental impacts; its product stewardship policies; employment practices; and executive performance and rewards.

For example, some 25% of the companies now traded on the London Stock exchange have requirements for environmental and social reporting, set by one of its major stakeholders, the Association of British Insurers. Other major investors, such as Insight Investments, are actively voting their shares to hold Boards accountable for the remuneration and option policies they set as well as the directors they seek to appoint. Major stakeholders are now demanding that organisations become more ethically responsible for all their impacts on society, and are moving the balance of power from inside the boardroom out towards society. Ethical diligence is the unspoken social accountability bestowed by society in granting a business its privileged status as a Limited Liability Company. So, in the absence of an internationally recognisable code similar to the Accountancy Standards, and a single regulatory body, how does a Board set the ethical tone of the organisations they steer? The answer is simple: by taking nothing for granted. In just the same manner as the figures are interrogated and bench-tested against recognisable benchmarks, so too a Board accountability system needs to be put in place to oversee the ethical dimensions inherent in how business goals are pursued. Management performance in the ethical arena must be reviewed regularly to ensure the ethical tone doesn’t stay at the policy level only, but is actively used to shape the organisational culture in measurable ways. Ethics is a risk area for the business like any other area and therefore should be managed and measured with equal diligence. Our free enterprise system rests on diligence being equally demonstrated in the ethical as well as the financial arenas of business.

Corporate social responsibility and business performance An increasing volume of field research demonstrates the link between responsible business and marketplace success. The first theory is that CSR is an indicator of good management; the second countervailing theory is that

41

42

C HAPTER T WO

financially successful firms have more resources for social activities. Research data suggests that both theories are sustainable and that ‘financially successful companies spend more because they can afford it but [corporate social responsibility] also helps them become a bit more successful.’ In a 2005 study, Corporate Environmental Governance conducted by Innovest Strategic Value Advisers on behalf of the UK Environment Agency, researchers found that 85% (51) of 60 research studies conducted over the previous 6 years showed a positive correlation between environmental management and financial performance. Ongoing research builds on the huge volume of results in the last 10 years which show unquestionably that responsible business is the only recipe for lasting success in a world grown tired of business excuses for bad behaviour. There is now a substantive case for the financial and social benefits of what the OECD calls ‘taking the high road’ and managing business to a clear set of ethical principals. In a 2002 metastudy, Sydney University’s Marc Orlitzky and US colleagues looked at 52 studies of corporate social and financial performance over 30 years [Organization Studies 24/3 (2003) 403-411]. Their research proved that a statistically significant association between corporate social performance and financial performance indeed exists and that it varies between ‘highly positive to moderately positive’. We would argue that it is the responsibility of senior managers first to convince themselves of the arguments for being responsible, in order then to make a compelling case to their boards. Senior managers need to be able to defend against the argument that ethics, CSR and environmental responsibility are not necessary for economic performance, and to show that the ‘if only we could afford it’ mentality can entrap organisations in poor performance. As many research studies have concluded it is really not that surprising to find that CSR firms perform better financially. CSR helps companies develop new competencies by engaging employees organization-wide in bigger purpose issues beyond profit-making; it calls for progressive managerial styles that equip firms to be better prepared for external changes and crises. It builds reputations and enhances relations with bankers, investors and other significant stakeholders. It helps firms attract better employees and build employee loyalty and goodwill.

Legislative Pressures - Sarbanes Oxley Act of 2002 In the US, managing business ethics enjoys government support, incentives and increasingly legislative underpinning. The US ‘Sentencing legislation’ enables an organisation found guilty of corporate misconduct to have its sentence mitigated, provided it has sought to manage actively the ethical dimension of its organisational culture. Through this mechanism, the government gives legal

C HANGING

SOCIETAL VALUES

and formal recognition to the fact that management has an important role in promoting workplace ethics. Following the passing of the Sarbanes Oxley legislation in 2003, in an attempt to prevent another spate of corporate collapses, the Sentencing legislation has been further updated to specify that business ethics management should be seen as a dynamic and ongoing process and not something that can be taken care of by a few policies that may or may not be observed or enacted by organisational members.

Ethical relativism and the global marketplace In the past it might have been acceptable for multinationals to adopt a corporate policy of ethical relativism, taking their behavioural cues from local standards promoted by the host countries. However, in a world of instantaneous communications this is no longer regarded as the right thing to do. Today’s multinational manager is accountable not just for his geographic region but also for the company’s global reputation. Decisions taken in what used to be thought of as the far-flung regions of West Africa, China or Bengal are beamed around the world in minutes rather than months. Global boards have woken up to the reality that their company’s reputation may be only as strong or as weak as the ethical standards and practices pursued by their smallest subsidiary in the furthest corner of the globe. This demonstrates again that ethical standards need to be set higher than local legal compliance dictates. Western consumers are now well aware that developing countries are the major source of labour for the products they buy. Increasingly consumers are not prepared to buy products from organisations that are seen to exploit these workers, even if it is indirectly through sourcing agents or contractors – for example, in footwear and clothing. This does not necessarily mean that global organisations must observe the same wage policies around the world, as this would render developing economies uncompetitive and unattractive to foreign investors. However, it does mean that Western companies must ensure that standards expected by consumers in their own countries are promoted throughout their supply and manufacturing chains elsewhere, so that local economies are positively impacted by their operations. In deciding these standards therefore, business leaders must consider and respect the local context alongside the principles and values the organisation espouses. This is particularly important where organisations find themselves having to face compliance with local practices that are morally questionable – such as during the apartheid era in South Africa or the distribution of oil drilling royalties in Nigeria. Similarly, today most multinationals have closed their operations in Burma because Western consumers do not wish to be seen supporting brand names that in turn are doing business with its repressive military regime.

43

44

C HAPTER T WO

With environmental standards, there are expectations of higher performance no matter where the organisation finds itself operating. The task of minimising business’ adverse impact on what is essentially the global commons has been handed firmly to the business community by a global citizenry organised to take action.

AngloAmerican’s Business Principles AngloAmercian plc and its subsidiaries have an established tradition of community involvement and social investment. We have always seen the objectives of seeking to provide superior returns to our shareholders and shouldering our share of social and environmental responsibilities as complementary. Our business success brings with it obligations of good stewardship and ethical behaviour. Our operations will perform better when the communities surrounding them are stable and prosperous. Conducting business now with an eye to the needs of the future is the essence of sustainable development. As we enter the era of globalisation we must recognise that many people have fears about the pace of change and the perceived motivations and power of international corporations. In response, companies need to be transparent and accountable. We need to show that we use our resources and influence in society to the good. ‘Good citizenship’ sets out the values and standards which guide us in the conduct of our businesses. Whilst we operate in many countries and in widely differing conditions, our values and principles have universal application. Our Business Principles apply to every business we manage, everything we do and to every part of the world in which we operate. We will ensure that these principles are properly understood and observed. Chairman & CEO, April 2002

The fact is that most multinationals like AngloAmerican now accept that they must be explicit about the interdependence between non-financial accountability and bottom-line performance, and the compatibility between the two. Put simply, it is no longer good enough to create jobs no matter what the social cost. Voluntary international protocols and a myriad of agreements, covenants and transnational treaties are all testaments to a desire by leading businesses to respond to the social expectations of the time. Examples of protocols include:

C HANGING

SOCIETAL VALUES

▲ The Equator Principles in the finance sector: www.equator-principles.com

International Finance Corporation (2003) The Equator Principles: An industry approach for financial institutions in determining, assessing and managing environmental and social risk in project financing. ▲ The Global Reporting Initiative (GRI) in the manufacturing and resource sectors: www.globalreporting.org Global Reporting Initiative (2002) Sustainability reporting guidelines. GRI Secretariat, Amsterdam. ▲ The UN Global Compact in human rights: www.unglobalcompact.org UN Global Compact Office (2001) The Global Compact. United Nations, New York Host societies give both a legal and social licence to business to operate. From a sociological perspective, the current CSR debate reflects the struggle taking place between host societies and business as the former seeks to recalibrate its relationship to business. The implications of this social licence and the implicit obligations it places on business are championed by advocates of the CSR movement operating both inside and outside the corporation. Once we look at society’s changing values and expectations of business – and how these might impact on the company in terms of its obligations to all its stakeholders – we can no longer confine ourselves to the purely legal argument. The ‘social nature of business’ draws us into a higher order conversation where concepts such as duty, responsibility and humanity matter. This transcends the artificial boundaries we have created for the marketplace, including the concept of limited liability, and enters the ethical realm. Here, the guiding premise is that we ‘do no harm’ and this does not require a change in the law to encourage people to behave responsibly towards others. The marketplace after all, is a social invention designed to serve society’s needs. One of the immediate challenges facing Boards is to re-embrace the larger social benefits of business that Adam Smith foresaw in 1776 in The Wealth of Nations, moving their primary focus from a short-term financial orientation to shareholder returns to a more inclusive leadership orientation that also manages for the public good. This dual role enables organisations to play a citizenship role, engage the hearts and minds of its people and win back society’s trust. Successful organisations do not just happen. They are managed through major transitions which often represent crises of identity, as is the experience of many business organisations today. The strategic direction and supervision of the organisation’s ethical footprint has become as important to the Board as financial performance.

45

46

C HAPTER T WO

Non-financial accountability is essentially an aspect of good leadership and no longer can be thought of as a distraction from the goal of making money. Engaging with the organisation’s full range of stakeholders has never been more critical or more easily facilitated. Futurist David Siegel invites us to view markets as essentially conversations (Futurise Your Enterprise – Business Strategy in the Age of the E-Customer, John Wiley, 1999). He points out that the globally interconnected economy is perfectly designed for inclusivity. It treats people as individuals and gives them a voice – interactive websites that can work for or against the company – with the Web making possible the facilitation of multiple conversations. Siegel suggests that the biggest difference between the way we do business today and the way we will do business tomorrow is that we will all become better listeners. Webs have enabled organisations to develop their own sense of place in the wired world, a place where conversations take place and where – as is promoted by many global corporations including, BP, Shell, AngloAmerican and ABB – even CEO’s can be questioned and held to account by concerned stakeholders.

Ethical accountabilities to different organisational stakeholders Employees: The ethical dimension is that people will not be treated as a means to an end and human dignity is respected. Consumers: The ethical dimension is that consumer welfare will be protected and every precaution taken to ensure products and services do no harm. Competitors: Competition should be conducted openly and fairly on a level playing field and the integrity of the marketplace safeguarded. Communities: The public interest will not be sacrificed for the sake of commercial gains. Global Society: That the global commons will be respected and not exploited for short term gains. Neither will social or political corruption be facilitated by business interests. Future Generations: That their interests will be considered so that their natural environmental inheritance – including biodiversity – will not be eradicated by present day practices.

The ethical challenge for today’s business leaders then is that they can choose to take the compliance-driven low road or choose instead to take the principle-based high

C HANGING

SOCIETAL VALUES

road, tuning in to today’s CSR conversation with its core focus on stakeholder accountability, listening to them and behaving accordingly. As a society, we are all diminished if business leaders choose economic minimalism over integrity-based optimism. Rather than seeing demands for greater ethical accountability as a threat to business, they can be seen as an inexorable part of business’ social evolution. It asks no more of business than that it address its own very human dimensions.

EXERCISE Governance For the new breed of company directors, emerging from the current climate of social and business reform, it is critical to look beyond fiduciary obligations and recognise the indivisibility of business, environmental sustainability and social progress – with the accountabilities this brings. Big questions need to be asked and answered: ▲ How does business ensure its stated purpose and values are central to the creation of wider stakeholder value? ▲ What must be done to create an organisational culture that respects human dignity? ▲ How should business become involved in responsible social and environmental practices in off-shore locations? ▲ How should business define its ethical requirements to its suppliers? ▲ What does it mean for employees and a business to be successful? ▲ How should business move from a culture of short-term shareholder return to medium–long-term stakeholder return. ▲ How does business honour its ethical obligations to its people, its community and the natural environment? ▲ What are the intergenerational ethical responsibilities of business (and society)? ▲ How can business be part of the solution to global issues of concern? ▲ How should host societies change their license to allow business to operate? ▲ What needs to be done differently now?

Record your answers on the page overleaf and revisit them when you have finished Chapter 8.

47

48

C HAPTER T WO

Answers – Governance in my company 1. Promotes stakeholder interests by:

2. Respects human dignity by:

3. Implements corporate social responsibility offshore by:

4. Requires ethical supplier behaviour by:

5. Defines employee and business success by:

6. Is moving from shareholder to stakeholder return by:

7. Treats its people, community and environment ethically by:

8. Ensures equity for future generations by:

9. Contributes to solving global problems by:

10. Upholds its social licence to operate by:

11. Implements change management ethically by:

12. Listens to my concerns, issues and dilemmas by:

CC H H AA PP TT EE RR 33

GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY Every human act takes place in language. Every act in language brings forth a world created with others in the act of coexistence which gives rise to what is human. Thus every human act has an ethical meaning because it is an act of constitution of the human world. This linkage of human to human is, in the final analysis, the groundwork of all ethics as a reflection on the legitimacy of the presence of others. Umberto Maturana (the highly respected biologist and former Ecuadorian Education Minister) with Francisco Varela in The Tree of Knowledge (1988) One can interpret this in many ways but what Maturana and Varela seem to be saying is that when two or more human beings create a relationship, they have an ethical responsibility to the other humans in that relationship. This relationship has at its core the recognition of the legitimacy of all others in the relationship. This for us goes to the essence of corporate responsibility and its ethical dimension. Will organisations seek to minimise the adverse impacts of their actions on stakeholders, continue to deny the legitimacy of their accountability for adverse impacts or reinvent themselves in our emerging era of stakeholder capitalism?

49

50

C HAPTER T HREE

This chapter looks at the dynamic forces shaping organisational context and the behaviours that evolve within it, as well as its external context and its interrelationship with other stakeholders. These forces include the tone set by: ▲ the Board and management expertise; ▲ the workplace context; ▲ the personal values and expectations that organisational members bring to

work; and ▲ the wants, needs and expectations of wider stakeholders.

Organisational stories Every organisation has both an internal and an external context in which it operates. The behaviour it displays in each of these contexts may be consistent but, more often than not, the behaviour tends to diverge in significant ways. This divergence shapes the ethical profile of the organisation. Just like individuals, organisations can present themselves in different ways depending on the audience concerned and the impressions they are seeking to create. There are therefore multiple stories being told and this helps explain some of the complexity involved in managing organisational integrity – different stakeholders are exposed to different stories and therefore can experience the organisation in different ways. We suggest that there are at least four different organisational stories or ‘faces’ that can be simultaneously projected: ▲ Stories we tell others about our organisation – our best image and PR story

as told in our glossy company brochures; ▲ Stories we tell ourselves about ourselves – our internal story and the information we make available on our intranet site designed to motivate and manage members; ▲ Stories others tell – stories told by our competitors, ex-employees, trading partners, media and other external parties that may well be different to the stories we tell about ourselves; ▲ Stories of what’s possible – here we dream about what we can become and set our goals to make such visions our new reality. All of these personalities and the stories behind them have one common source: they are shaped by the organisation’s internal culture which in turn selects the face presented to each audience.

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

Leadership There are two things in life. You can be out for the maximum amount of profit you can possibly squeeze from your effort, or you can aim at a reasonable profit and have a feeling that you leave something behind. Dick Dusseldorp, founder and first chairman of Lend Lease AGM, 1988 By its nature, business ethics is a dynamic system and this makes it inherently controversial. Each day brings new challenges that did not exist before. Technological breakthroughs have enabled us as a global society to be confronted daily by macro issues as well as the usual minutiae of business accountability. This information overload is giving rise to a multiplicity of questions regarding the dissolving boundaries between personal privacy and commercial access, nature and scientific exploitation, or human rights and economic or political oppression. While Boards cannot offer control over the external environment that affects the company, they can meet the organisation’s need for vision and business leadership. In the absence of a universal ethical code they set the ethical tone for the enterprise such as set by the board of mining giant, the AngloAmerican Corporation. By so doing they have set an example for other Boards to follow.

While the primary responsibility for the protection of human rights lies with governments and international organisations, where it is within our power to do so, we will seek to promote the observance of human rights in the countries where we operate. We support the principles set forth in the Universal Declaration of Human Rights. AngloAmerican: Our Business Principles

Encouraged from the top, each organisation as a community of people has to think about and decide on the core values that will underpin its management system. This, in turn, is designed to ensure that group members transcend individual egos and commit to a shared understanding and common set of behaviours in pursuit of its business goals. Values are the counterweight to the rampant pursuit of individual gain. It is the Board’s role to lead this process. In this way, the business can then be driven by a set of shared principles that offsets the absence of a set of universal ethical principles.

51

52

C HAPTER T HREE

Leadership capability is no longer just about having the potential to act but about actually taking action to promote positive change in the development of people and the emergence of organisational cultural contexts. Such action can be seen as critical in building the organisation’s capacity to learn, develop and respond in positive ways to changing situations; it constitutes ethical behaviour at Board level. It is not surprising to learn that marketplace research confirms that top performing organisations are also the organisations who invest heavily, not only in clarifying their vision and values, but also in nurturing distinctive organisational culture as a key item on the Board’s strategic agenda. Key Boardroom ethical accountabilities now include: ▲ Internal – accountability for management of the ethical dimension of

organisational culture, including modelling its ethical principles; accountability for equity in executive remuneration and performance; honouring self-regulatory codes; overseeing the development of ethical strategies to address the potential negative impacts of products and services; cradle-tograve stewardship of products; and the active promotion of employee well-being; ▲ External – identifying the rights of external stakeholders; overseeing ethical accountability in local and international supply and distribution chains; promoting the company’s ethical standards with suppliers and distributors; identifying and managing social, environmental and economic impacts; minimising, protecting and compensating stakeholders from adverse impacts; minimising global corruption and human rights abuses; co-operation with external parties in addressing outstanding social and environmental needs; protecting and enhancing the values associated with the company’s reputation and brand names.

Checklist for Ethical Dimensions of Governance Reflective questions that Board members need to ask of themselves, to ensure they can begin to build an ethical climate in their organisations, include: 1 What steps should the Board take to ensure that the organisation’s values and its code of conduct are living principles and not compliance documents?

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

2 How are the ethical challenges associated with organisation’s industry, its products and services addressed? What are your ethical strategies to minimise harm? 3 Can the board and organisational members clearly articulate the benefits of working in an ethical environment? 4 How does the Board seek to safeguard and nurture an ethical organisational culture independent of the CEO’s role? 5 What precautionary actions does the Board take when approving organisational policies that impact on ethical behaviour; e.g., reward and recognition policies; overseas investment strategies; organisational reengineering initiatives; intergenerational legacy; biodiversity impacts; social justice impacts? 6 When did the organisation last provide ethical training for its members? 7 How does the Board ensure that senior managers take ethical considerations into account when they make decisions on behalf of the organisation? 8 Is guardianship of the organisation’s values and ethics clearly articulated and monitored as a key accountability of the Chief Executive? 9 Is there a Board policy on dealing with unethical behaviour? 10 Does the Board commission a regular review of the external and internal perceptions of the organisation’s ethical reputation?

The ‘Ethics Decision Tree’ below symbolises growth and strength from a core of ethical behaviour. Many organisations fail to map the decisionmaking process in their organisations so that staff are often involved in various aspects of decisions but do not get to see the whole. The same goes for ethics: If employees have no sense of the ethical context of the organisation or the rules around ethical decision-making, they will operate out of their own sense of integrity. The trunk of the Ethics Decision Tree represents the ethical core of the business. All decisions feed into the core and the trunk is the conduit to the apex, which is the Board. Equally, this group has a responsibility to feed back down the tree the decisions it has taken and responsibility for actual and possible impacts of those decisions on the individuals and contexts of the business.

53

54

C HAPTER T HREE

Board tone

Executive management

Sales

Management tiers/functions

Marketing

Recruitment

Performance appraisal

Sourcing

Ethics core

ETHICS DECISION TREE A model in collaborative strategic decision making

The various levels of management below Board level are equally responsible for managing the ethical climate or tone of the organisation. It is critical in this ‘systems map’ that all functions have clear terms of reference and that all members understand the flow of decisions, outcomes and recommendations; ultimately, the firm moves forward with a clear sense of purpose and achievement, consistent with its vision, mission and principles. Ethics then, is embedded in every aspect of day-to-day management because it is visible and ingrained in management language and process.

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

Management of culture Management achieves its company goals by creating an internal organisational context that is conducive to external organisational success. This is not easily achieved as it involves influencing the behaviour of a diverse group of people, harnessing their energy to the shared vision of how to succeed. Organisational members are well aware of the link between management and ethical culture. KPMG research demonstrated in 2004 that Australian and New Zealand employees are highly sensitive to the management ethos of the company and its ethical standards.

Ethics in Australia and New Zealand Workplaces The 2004 KPMG Biennial Fraud Survey involved 2164 of Australian and New Zealand’s largest organisations across public and private sectors: ▲ 33% of respondents cited unethical or improper conduct at work in the previous 2 years. ▲ 22% attributed this to senior management’s lack of commitment to the organisation’s ethical code. ▲ 18% believed poor ethical culture contributed to unethical behaviour. ▲ 24% believed the CEO was responsible for embedding a culture of integrity.

Management is a skill, acquired through a combination of experience and learning. Increasingly, the experience element is replacing the learning element as complex businesses require higher order skills in senior management positions. Look at the succession of overseas CEO’s who have been brought in to manage Australia’s largest corporations, including BHP, Optus, Telstra, AMP and NAB. What Boards looked for in both instances was a skill set that was heavy on experience rather than academic qualifications. It is a matter for concern that different management styles continue to be allowed to coexist within the one organisation. Competing managerial styles fragment organisational harmony and retard progress – suggesting that those at the top have turned a blind eye to competing values and conflicting managerial signals which have been tolerated for short-term results. Organisations which foster such cultural disharmony in many cases do so deliberately to diffuse power and centralise control – and this can even be condoned or accepted by Boards. Such organisational practices are unethical.

55

56

C HAPTER T HREE

Why are such practices unethical? Because the highly political environments they create breach a manager’s duty of care to employees and often put insider interests – be they at Board, executive or consultant level – before that of shareholder, employee and wider stakeholder interests. By championing what is good for them personally, rather than what is good for the organisation as a whole, they diminish the full potential of the organisation and its members. Such political fragmentations can be found behind many of Australia’s corporate collapses, including One.Tel and HIH. Where there is poor management accountability, middle managers can act as a block to the flow of information between the top and bottom of an organisation. Organisations which do not encourage questioning, or which ‘shoot the messenger’ (whether internal employees or external consultants) rather than treat their problems systemically, breed inertia and dysfunction. The currency speculation losses of the National Australia Bank in 2004 are an example of what happens when an organisational culture is not open to hearing unpleasant information. In this case, the post media analysis reported how vital information was effectively withheld from NAB’s top decision makers. Post-loss analysis of its currency dealings showed that industry peers had voiced their concerns about the risks associated with certain currency transactions but this information never reached those in charge. Culture is the secret ingredient of corporate success but it needs to be managed consciously, shaped, moulded and constantly nurtured as happens with industry leaders such as such as Johnson & Johnson, Toyota and 3M. If unethical behaviour can be learned from observing what behaviours individuals can get away with, then ethical behaviour can be similarly learned. Managers can stimulate employees to ethical conduct by developing workplace systems that encourage, reward, recognise and thus reinforce ethical conduct. Personal ethical standards can be reinforced or challenged by the organisational context – this underpins employees both shaping and in turn being shaped by the organisation, its operation and community impacts. To understand the ethical dimension of business, employees need to know the rules so that they can get on with their day-to-day activities. Management policies which are consistent with day-to-day practices promote organisational effectiveness.

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

In organisations where rules are clear employees thrive, and the organisation is characterised by a high-performing culture. These organisations achieve extraordinary results largely due to discretionary efforts put in by employees. Interestingly, extraordinary results are achieved whether these cultures are autocratic or inclusive. We have worked with financial services companies that some might say have socially unfriendly cultures, yet were very successful. Equally, we have experienced collaborative cultures that eminently suit their industry and market conditions. There is no one set of values that suits all organisations or that suits every situation. Values, culture and ethics all depend on their cultural context. No matter what set of values the organisation espouses, success comes from rules operating consistently and transparently so that employees, customers and shareholders can make informed choices about whether they will join and stay with the organisation – or leave in favour of a workplace or organisation that better suits their needs. Increasingly, those needs are their values – which bring a sense of meaning, future and spirit to their lives. Just as nurturing parents accept the idiosyncrasies of each offspring, so managers must honour the diversity that each of us brings to the workplace – while managing for a consistent and shared vision of how the organisation will succeed. In such a culture, if there were a threat to the community, its members would voluntarily go to their managers and discuss how to deal with it. Levels of trust are high, people are trusted and, in turn, openness becomes the defining characteristic. Corporate culture then can also be seen as the social life of the organisation – defining how people make decisions and behave while at work.

Managing diverse contexts Corporate culture includes the operating set of values (these may be formal or informal) that govern how people should treat each other and how they should treat customers, suppliers, other stakeholders – and themselves. Corporate culture is a complex system; it is difficult to understand because it is dynamic, changing over time and involving different perceptions of ways of doing things – even within the same organisation. Differences arise from different management styles, different business contexts and even different tasks performed by members of that organisation. For example, the marketing department might behave very differently from the accounts department, sales from production, finance from customer service, or human resouces management from new product development. Individual

57

58

C HAPTER T HREE

departments or functions need the flexibility to reflect their functions and priorities, as well as the values and personalities of the people in them. So the sales and marketing departments will look and behave differently to the accounting, production, HR, customer service or finance departments and so on. Organisations working hard on their corporate values will minimise such differences by ensuring that there is a core set of shared values subscribed to by all employees, which are never compromised, no matter what task is at hand. Managers have ethical responsibilities and accountabilities because their power impacts on the quality of life of employees, as a community of organisational stakeholders. To use a family analogy, managerial power can be seen as akin to parental status where employees are entrusted into managers’ care by the societies that grant them a legal licence to operate. That is, if you are not comfortable inviting employees to your home due to their behavioural standards, why employ them? If your business cannot cope with their diversity are you really producing services and products for global markets you understand? If you cannot give your employees human dignity, where do you stand? Is this intolerance of difference their shortcoming or yours?

Workplace context The workplace context also shapes ethical actions that take place within it. In a recent study by the Ethics Resource Center in Washington DC (www.ethics.org - The National Business Ethics Survey - NBES 2003) almost one-third of respondents said they felt pressured at times to compromise their companies’ ethical standards, usually to achieve business objectives. Many business analysts readily recognise that seemingly relentless pressure to build profits in ever shorter time frames – to outsource and cut costs with ensuing negative impacts on employees and ever shorter tenures of CEOs, CFOs and CIOs – provides the ideal context for increases in unethical workplace practices. The KPMG 2000 Organisational Integrity Survey of US companies foreshadowed the corporate collapses that were soon to be played out there. Specific workplace dynamics resulting in unethical behaviour include: ▲ Mixed signals

Often there is an unacknowledged priority ranking within stated organisational values – with tolerance for inappropriate behaviour, as long as results are achieved. This sends the loudest message to employees about what is valued; it acts as a much more powerful communication system than any published code of ethics or company values statement. People

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

The KPMG 2000 Organizational Integrity Survey of 2390 US companies found that: Employees are observing a high level of illegal and unethical conduct on the job: ▲ 76% of employees observed a high level of illegal and unethical conduct on the job across all companies; ▲ 73% of employees believed that misconduct is caused by cynicism, low morale or indifference; ▲ Misconduct observed by employees is of a serious nature. Companies were sending the wrong messages to employees with: ▲ 70% believing that misconduct was caused by pressure to meet schedules; ▲ 65% of employees believing that misconduct was caused by pressure to meet unrealistic earnings goals. Management was perceived as unable or unwilling to deal with ethical conduct: ▲ 57% believe their CEOs and other senior management did not know what type of behaviour goes on in their organisations; ▲ 39% claimed that even if they alerted management to unethical conduct, they would fail to take corrective action. Organisational integrity requires comprehensive solutions. Management’s commitment to business integrity enhances its ability to attract and retain good employees. KPMG LLP United States 2000 Organizational Integrity Survey

listen with their eyes, ears, heart and spirit; if culture is contrived by what gets measured and rewarded, doubts will prevail. Policies merely signal intent. It is organisational culture and particularly, what gets rewarded, that determines action, effect, meaning and motivation. ▲ Focus on short-term results

Short-term business decisions can foster an abdication of responsibility for future consequences. The food industry is currently suffering from a public backlash following the emergence of a generation of obese consumers and

59

60

C HAPTER T HREE

an epidemic of childhood diseases – such as diabetes, high blood pressure and cardiac disorder – attributed to the poor nutritional content of many fast food products and a sedentary lifestyle. ▲ Ignoring impacts on stakeholders

Business leaders can easily find themselves disconnected from the impacts of their products and services and blindsided to the social (customer, employee and supplier) relationships which give them validity. Typically manufacturers are separated from their customers by wholesalers and retailers while marketing and advertising activities are outsourced to independent advertising agencies. Such fragmentation can disconnect a systemic consideration of the ethical accountabilities associated with their business. Traditionally these include: – Safeguarding public trust by delivering the product features and services – Honesty to customers by providing sufficient and accurate communications – Responsibility to social security, equity and justice by avoiding psychological manipulation; for example, by not promoting fear to sell political campaigns, defence services or self-serving strategies. – Personal well being by avoiding psychological manipulation which advocates poor body image to sell cosmetic products – Duty of Care to consumers by taking every precaution necessary to eliminate potential harm to them, your suppliers and your company; and – Respect for human rights by consulting vulnerable stakeholders in production, pricing and distribution strategies that may impact negatively upon them. ▲ Self interest versus concern for Others

Organisational reward and remuneration systems are fraught with ethical issues. They have become more contentious as executive salaries and remuneration greatly exceed relativities to employee rewards and noncommercial professional salaries. With easy access to information about executive remuneration practices through annual reports, the media and the Internet, this perceived inequitable distribution of income has been the source of anger for many stakeholders – inside and outside the organisation – particularly when it appears to have few links to actual business or executive performance (see www.executiveexcess.com). Traditionally workplace reward systems were designed to reward employees with economic incentives to achieve even greater financial contributions to the organisation’s success. But in an era where greed at the top of

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

corporations appears to be condoned in the pursuit of short-term returns, incentives have become more keenly focused on narrow parameters of success such as: profit, increased market capitalisation, EBITDA and other formulae based on short-term financial improvements. The majority of employees who never rise to the executive level but who often contribute significantly to the organisation can lose out in what seems like a winner takes all system. The management message that goes out from Boards which approve such reward systems is that the most important thing is financial success. Activities such as building the organisation’s internal life, serving the customer, nurturing the development of junior staff, promoting good interpersonal relationships and sharing knowledge, are considered as ‘nice to haves’ but of individual not organisational concern. An ethical reward system recognises these qualitative contributions to company performance. ▲ Victory of style over substance

We live in an era where ‘Image is everything’ – image is directly connected to corporate reputation and market capitalisation. So it has become popular for organisations to include the values of ‘honesty’ and ‘integrity’ in their published values statements. The misapplication of these values in corporations easily wilts their reputations in the light of public scrutiny. ‘Honesty’ is a value that employees can often see being compromised by commercial imperatives, while ‘Integrity’ as a value is often linked to communications. There are also ethical (and legal) issues in the presentation of information in corporate brochures, social and environmental reports as well as annual reports in relation to how the company conducts itself. Communications that are false or misleading prevent people from making informed choices – whether they are purchasing products, reviewing an organisation as a potential employee or as a suitable investment. They can lead to customer, employee and investor frustrations and foster mistrust of business – because individuals feel they have been deceived or ‘ripped off’. ▲ Personal priorities and values versus Organisational goals and values

Every time a new employee enters an organisation they bring their personal value systems into that workplace. These values systems can reinforce or undermine the existing company value system. In 1991, O’Reilly, Chatman and Caldwell showed that commitment, satisfaction and turnover are all related to how well an individual’s personal values fit with those of the organisation (People and organizational culture: a profile comparison approach to assessing organizational fit, AMJ 34, 487-516). Employees who enjoy a synergy between their personal and their organisational values stay twice as long with

61

62

C HAPTER T HREE

employers as those who experience a conflict of values. Research in this area supports the popular notion of self-selection and suggests that an unethical workplace will perpetuate itself just as an ethical one will perpetuate itself. Despite increasing use of compliance programs and the proliferation of voluntary codes of conduct within Australian organisations, field research demonstrates that the majority of managers operate out of their own personal value systems in making decisions on behalf of their organisation. Typically, personal assumptions go unexamined and unchallenged. This is one of the key reasons why ethics training is necessary. Every organisational member needs to be clear that it is the organisation’s values that take priority at work. Unquestioned personal value systems, and individual world views or mental models of what is appropriate behaviour, will always be a source of potential risk and misconduct. Through workplace ethics training, potentially destructive personal mindsets can be brought into the open, discussed and challenged as part of organisational recruitment, induction and performance management systems. The goal of workplace ethics training is to assist employees to understand their organisational context and personal accountabilities to do the right thing by the organisation and its stakeholders. The Ethical Qualities model below is another prism developed by KPMG’s Global Ethics Practice team in The Netherlands. We have found it to be one of the most useful ways of demonstrating how the organisation itself can place its members in ethically challenging contexts, with the potential consequences for the organisation if members fail to act appropriately. Workplace ethics training using such models helps to raise employees’ awareness of their collective and individual responsibilities. It provides muchneeded workplace opportunity to understand why organisations invest in identifying their core values. All organisational members need opportunities to distinguish between personal and workplace values and, where and when each takes priority. Sadly, the little workplace ethics training that does take place in Australian organisations is overwhelmingly driven from a compliance imperative. This fails to meet employees’ needs to make sense of and build personal meaning around their industry code of conduct, and thus how to apply it systemically in decision making.

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

KPMG Ethical Qualities Frameworks Fundamental dimensions Cause

Possible repercussions of failing context

‘Entangled hands’

Because employees represent the organisation, they have access to assets which should be used for organisational purposes but which they may divert for their own use.

• Carelessness, use or misuse of time, information, funds, authority, equipment, goods and staff.

‘Many hands’

The organisation consists of staff, departments and divisions, each with their own functional responsibilities, which should be geared collectively, and which should be furnished with the necessary assets for giving expression to the collective responsibilities.

• Counter-productive competition between staff, departments and divisions • Responsibilities get lost • Unresolved collective problems • Responsibilities are shrugged off • Tasks are not or only partially performed

‘Dirty hands’

The organisation is confronted • Stakeholders have legitimate with (conflicting) expectations reason to complain from stakeholders that should • Stakeholders are less willing be realised or balanced to participate adequately • Stakeholders remove themselves from the organisation • ‘License to operate’ expires

In the next chapter, we look at personal values, world views and mindsets in more detail.

EXERCISES Here are typical sets of organisational dilemmas – based on actual case histories – developed by KPMG’s Global Ethics Practice in The Netherlands as part of its Cards on The Table ® business ethics training resource. Can you identify the above ethical framework underpinning each response? Identify your personal values, your organisational values and the reasons you chose the framework. Continued

63

64

C HAPTER T HREE

Dilemma 1. How would you choose? One of my colleagues has applied for a job in another department. Personally, I am happy about this because I wish to get rid of him and so I hope he gets the job. Although his work is okay, I find him loud and obnoxious and others do too. I have just received a phone call from the manager of the department where he has applied for the job. The manager tells me she is about to hire him but wants to know how he fits into a team environment. What should I do? ▲ Tell her he’s a good worker but make no reference to his poor interpersonal skills. ▲ Tell her exactly what I think of my colleague. ▲ Remain non-committal and give general, vague information. ▲ Tell the manager to speak to my manager as it’s not my place to give references.

Dilemma 2. How would you choose? A colleague at work is also Chairperson of a local charity. I notice that she regularly uses our office resources for communications with external parties including emails, photocopying and faxing regular information bulletins. What should I do? ▲ Tell my colleague that I am not sure whether what she is doing fits within department policy, and refer her to the policies and procedures manual. This way she can make up her own mind. ▲ Tell my boss what is happening and leave it to management to do something about it. ▲ Bring up the issue of company resource usage at the next team meeting in vague terms, hoping she will get the message. ▲ Nothing – it is not my business and, besides, it is a good cause.

Dilemma 3. How would you choose? One of my colleagues is having a lot of domestic problems – to the stage where his home life is interfering with his work. Other colleagues and I constantly have to redo his work because he is doing such a bad job of it – mainly because his mind is on other things. We have been covering so well for his mistakes that our boss is unaware of how poorly he is performing. I have just heard that he has received a very good performance evaluation and a resulting promotion. What should I do?

G OVERNANCE ,

CORPORATE SOCIAL RESPONSIBILITY AND EMPLOYEE ACCOUNTABILITY

▲ I speak to my colleague about how poorly he is performing and how often others’ have to do extra work to cover his mistakes. I ask him to own up to our manager and discuss ways of improving his performance. ▲ I talk to our manager about the situation. ▲ I tell my colleagues that we should all stop covering his mistakes. He will soon be exposed and management will fix the problem. ▲ I do nothing – after all, I’d expect my colleague do the same for me in a similar situation.

Dilemma 4. How would you choose? One of my roles is to record expenses for my team. In the past, the team manager has asked me to make sure that I record as expenses personal activities such as taking his partner to lunch or friends for dinner. Up until now these have been infrequent so I have put them through without question – after all, he works hard and contributes a lot. However, his expenses are getting more costly. I recently questioned him about some hotel expense claims that I know were not work related. He told me I was overstepping my position and it was none of my business. What do I do? ▲ Let them go – perhaps he deserves extra rewards because of the long hours he has been working. ▲ Refuse to put the expenses through – tell him he can ask someone else to do his expenses ▲ Raise the matter with the Human Resources Manager. Maybe they can speak to him. ▲ Tell him I will put through these expenses this time but never again.

Answers to ethical dilemmas Dilemma 1. Choice of framework: Your personal values:

Organisational values:

Why choose this framework?

65

66

C HAPTER T HREE

Dilemma 2. Choice of framework: Your personal values:

Organisational values:

Why choose this framework?

Dilemma 3. Choice of framework: Your personal values:

Organisational values:

Why choose this framework?

Dilemma 4. Choice of framework: Your personal values:

Organisational values:

Why choose this framework?

CC H H AA PP TT EE RR 44

CONTEXT,

CHALLENGE

AND CHOICE A prince never lacks legitimate reasons to break his promise Machiavelli The Prince (1513)

Much of what the West took for granted in our free market system and assumed to be human nature was not nature at all but culture Alan Greenspan US Federal Reserve Chairman – Speech June 10, 1997: The Embrace of Free Markets, Woodrow Wilson Award Dinner, New York

At one level, ethics is the depth dimension of an organisation; one that is only truly tested in times of crisis. To illustrate this point, let us remind ourselves of the Australian extortion threat against Panadol manufacturer GlaxoSmithKline (GSK) in June 2000. Threats were, in fact, made against two manufacturers of paracetamol tablets but, for the purposes of this example, let us concentrate on GSK. Immediately the threat was received, the MD of the company announced an immediate recall of all brands under their livery on national television. The company, he said, was not prepared to risk the health of one consumer and they were removing their products from retail outlets. The entire organisation was mobilised to make this happen within a matter of hours. Here was an organisation

67

68

C HAPTER F OUR

facing a crisis but their values did not permit a risk minimisation strategy. It was not simply an economic decision; it was an issue that challenged the selfidentity and core values of the organisation. By taking a principled stance, the organisation strengthened its reputation as a responsible company, retained its brand loyalty and was able to regain lost market share once the products were returned to the shelves. The price paid was high but, as the MD GSK Consumer Health Care explained, it was worth it: I think if you do the right thing by your consumers, your key stakeholders, you will be rewarded. It might not be in the next week or month, however, especially if you are recalling product from the market. Consumers will remember, however, that you put their interests in front of your own. For us the price tag was 100 million dollars, but we’ve been in the marketplace over 40 years – there’s a long-term viability to our brand and our company. A hundred million dollars is a lot of money, but our long-term reputation is worth a lot more. You can’t get too short-term in your thinking on this. Alan Schaefer, www.ceoforum.com.au - Interview by Burson-Marsteller At another level, ethics is the point of difference between an averagely performing company and an excellent one. Take the case of Blackmore’s the Australian alternative medicine company and its peers. When the industry was rocked in 2004 with the exposures of the unethical practices pursued by the market leader of generic alternative remedies, Pan Pharmaceuticals, Blackmore’s was able to remain aloof from the industry turmoil and retain its loyal consumers. They stayed loyal because they had bought into the values of honesty and integrity associated with the Blackmore’s name, were confident and could prove that its manufacturing processes were sound.

Ethics in an organisational context So what is ethics in an organisational context? Well, first we must be clear as to what we mean by ‘the organisation’. Increasingly, organisations are defined as ‘living complex adaptive systems’, changing in response to the environmental circumstances in which they find themselves. The ethical dimension of business life is similarly adapting and evolving in response to changing social values, new business situations and new technologies. What is seen as ‘okay’ business practice today may well become ‘unethical acts’ tomorrow, as new information emerges and we better understand the full consequences of our actions.

C ONTEXT ,

CHALLENGE AND CHOICE

This means is that ethics – and our interpretation of them – are not static but fluid, needing constant re-interpretation in the face of changing information and changing social expectations. However, in today’s fast moving world directors, managers and employees are looking for easily recognisable signs of how to identify the ethical dimensions of working life. Gone are the days when ‘command and control’ cultures in stable marketplaces afforded ‘surety of fact’ and ‘timeliness’ in accurate decision-making. The world is moving too quickly for most of us. The pressures to ‘do the right thing’ and, just as often, to ‘be seen’ to do the right thing, are enormous. The diffusion of responsibility in modern workplaces makes it imperative that all organisational members are skilled to address the vast array of ethical uncertainties they face and know how to source and cascade these essential skills throughout their organisation. Although no one can provide the ethical certainties many of us crave, there is a need to provide a richer understanding of the new success indicators for business. These will encourage individuals at a personal and collective level to address ethical uncertainties in a more informed manner. To survive in business today – and there are many casualties in the battle for social relevance – directors, managers and shareholders are exposed to a wide range of potentially risky business situations that carry the label ‘unethical practice’. These include: ▲ ▲ ▲ ▲ ▲ ▲ ▲ ▲

inaccurate reporting, predatory pricing, misleading advertising misuse and theft of company assets and employee superannuation funds insider trading, lying, deceiving and cheating violations of privacy and divulging confidential information employee bullying, discrimination and exploitation competitor collusion, price fixing and bribery environmental pollution and endangered species or habitat destruction social, cultural and religious desecration

and a myriad of other practices that can go unrecognised, unchallenged and unmonitored in workplaces and in corporate decision making. Perhaps one of the great tragedies of modern workplace life is that unethical practices often emerge as a simple consequence of the absence of any intent to manage ethically. Attracta Lagan In-Focus, Edmund Rice Centre, September 2004

69

70

C HAPTER F OUR

This observation needs further elaboration. It is often assumed that ‘unethical conduct’ results from deliberate acts or intentions. This is mostly not the case, although there have been some glaring examples in recent times where directors and managers have set out deliberately to deceive or defraud the market. In our experience, most unethical acts result from honest intentions to ‘do the right thing’ by the company or shareholders. By contrast, companies that consciously manage the ethical dimension do so by a clear and unequivocal statement of principles that provides an organisational framework for employee behaviours and removes any confusion about what is in the company’s interests. For decades the faceless corporation acted behind a convenient mask to disguise the fact that individuals are responsible not only for their own actions but for the actions of those who act on their behalf. The corporate veil has been lifted progressively to expose the human frailty of corporate reality: that there are real people behind the titles of CEO, CFO, CIO, COO, Public Affairs and Marketing Director. Herein lies one of the core ethical dimensions of business; that we are all interconnected in pursuit of a common goal. We are inextricably bound to each other as employees, investors, customers, suppliers and shareholders. The obligations of these relationships are often taken for granted and it is assumed that everyone will know what is fair or the right thing to do. Perhaps the biggest obstacle to building a robust understanding of daily ethical challenges in business is that so many questionable practices go undiscussed and unrecognised. Unethical practices become ‘the undiscussables’ of organisational life. They begin at the top where Boards fail to make explicit ‘the ethical tone of the enterprise’ and then cascade down through the organisation as each level takes its cue from what in not discussed by the level above it. Instead, the focus is on the things that do get regularly discussed, measured and reported; figures, finance, budgets and behaviours to meet short-term expectations of a narrow band of stakeholders.

Research conducted by the New York Conference Board think tank found in 2003 that: ▲ while 81% of American firms had conducted ethics and compliance training programmes for their employees, ▲ only 27% had held any ethics training sessions for their directors.

C ONTEXT ,

CHALLENGE AND CHOICE

▲ About 55% of those surveyed said their Boards are ‘not engaged enough’ in major ethical issues. Even more disturbing, the research found that ethical leadership and accountability at Board level was seriously lacking – as evidenced by the firm’s response to executives found to be doing the wrong thing. ▲ Some 60% of company executives who do the wrong thing actually get rewarded by the severance package they are awarded. Ethics Programs ... The Role of the Board: A Global Study Ronald E. Berenbeim, Jeffrey M. Kaplan, February 2004

Personal accountability Ethical challenges consist of the day-to-day acts that people engage in but would be reluctant to admit. Sometimes they are painful to acknowledge or even to think about – even as part of an ethics training session – because very often they make us all confront aspects of ourselves that we do not wish to recognise, and thus have marginalised. Unethical acts are rationalised away by notions of ‘everybody does it’, ‘I was only doing what I was told to do’, ‘it’s part of our culture’, ‘the boss says I have to do it that way or else’, ‘that’s standard practice in our industry’, and so on. An exploration of business ethics can be painful for other reasons too. Often, it involves a critical review of and reflection on the personal unexamined prejudices and assumptions that we take into each situation, which are rarely acknowledged. These work to undermine our ability to respect individuality and diversity, and act with integrity. Instead we project our biases and assumptions onto the situation, deny its uniqueness and limit our ability to see its opportunities. Engaging in the ethical debate brings discomfort in other ways. We are immediately confronted with our humanity, our interdependence with each other, and the responsibilities this brings. We pretend that it is better not to know, not to ask, or to assume a conveniently crafted independence or inability, to protect us from sacrificing our self-interest for the sake of others’ needs. It is this micro-level unreflective personal behaviour, the nitty-gritty of everyday work life, the little steps and abrogation of duty that profoundly shape the people we become and the organisations we build in our own image.

71

72

C HAPTER F OUR

There are, of course, larger ethical issues that confront business which also need to be addressed. Ironically, these are often easier to engage with because they are not quite so personal or because ‘independent’ experts can be called in for assistance in identifying what to do. However, for most of us it is the unrecognised, undiscussed and unresolved day-to-day activities that shape the ethical dimension of our workplaces. We have to deal with these issues when they emerge. If we do not, these small issues will grow into bigger issues – and we may find ourselves an unwitting part of an organisational crisis, scandal or corporate collapse – by which time it’s too late to paper over the cracks. In Northern Ireland, where we grew up during the ‘troubles’, we had a popular saying that: ‘you’re either part of the problem or part of the solution’. This stark reality challenged ordinary folk to reflect on the part they played in contributing to the mess they were in, even if it meant not speaking out about situations they knew about in their own backyard, or attempting to help clean it up. The same applies to organisations. We all have to accept responsibility for the contexts in which we find ourselves in any life situation. As the eminent philosopher and politician Edmund Burke once said: ‘Evil only exists where men [and women!] of good conscience remain silent’. Edmund Burke (1729 – 1797)

Organisational accountability Life is not neutral; we are all impacting on our own and each others’ situations in positive and negative ways. Which ‘way’ you choose is the ethical challenge. In the modern business world, where personal and organisational reputations are critical to success, no one can afford to be complacent about their ethical standards. For many people, however, workplace ethical challenges are not straightforward; often people do not believe that they have the luxury of freedom of choice, but feel constrained by how things get done either in their organisation or by their industry’s ‘way of doing things’. A colleague recently addressed a Rotary forum of young leaders and was asked that very question:

C ONTEXT ,

CHALLENGE AND CHOICE

‘What if everyone else in your industry does the wrong thing? Surely it will cost you business if you step out of line?’ This is a question that we hear often; it perpetuates the notion that ethics costs the business. His answer was a simple one, drawn from his own experience in a highly competitive industry in the mid-eighties, where bribery and inducements were common: ‘We made the decision, that we would not condone this illegal behaviour, even at the cost of doing business with the biggest supplier in the industry. What we did do, however, was to make it known to all the other suppliers that we did not play by these rules. Our business grew by a substantial amount because all the other suppliers knew that they would get a fair deal from us and wanted to do business with us. Dare I say it; it also resonated with their own personal sense of what it is to be ethical. Just as one lie begets another, one unethical act often leads to others.’ Business ethics is therefore not as straightforward or easy as some might lead us to believe. It involves both personal and organisational reflection on the appropriate reaction to different situations: ▲ how we ‘feel’ as organisational members about certain decisions we or peers

might make; ▲ how we ‘should’ respond to others’ expectations of us; and ▲ how we ‘ought’ to behave. It involves personal reflection to decide what we as individuals believe is important and what standards we will not compromise. Increasingly however, it also involves collective reflection, by all organisational members, to deconstruct this thing we call ‘the organisation’. We need to be reminded that: when we use the word ‘organisation’, what we’re really talking about is a community of individuals who come together in a set of relationships with each other (and others) for a common purpose. If you read early accounts of the industrial revolution, you realise that the associations of labour to form organisations for collective work were voluntary acts. Thousands of ‘cottage workers’ voluntarily left the isolation of their farms to go to the factories because of the opportunity to associate and congregate with other workers. Social researchers have observed a similar phenomenon of single travellers coming together, in say an airport, to form a loose grouping around each other in the same part of the lounge. Humans are social beings and feel

73

74

C HAPTER F OUR

happiest surrounded by other human beings; it is being able to engage and enjoy positive relationships with others that most satisfies human desires. We need to spend quality time reflecting on how we want to be together in business as much as the other areas of social life. Such reflection involves both individuals and organisational leaders becoming clearer about the personal and organisational values that shape their actions, then how these values relate to each other and the society in which their business is located. It involves a move to a conscious decision-making framework, informed by the organisation’s stated values and the synergy between them and their employees’ personal values. At another level, business ethics is about responsible business practices we have already discussed including: ▲ ▲ ▲ ▲ ▲ ▲

stakeholder consultation; product stewardship; supply chain management; the ethical dimension of new technologies; the move to eco-efficient technologies; and active participation in addressing the outstanding needs of society.

These are some of the major ethical accountabilities shaping the ethical landscape; we also have to recognise that it is a dynamic landscape and each new day has the potential to bring new challenges that may be added to this list.

Social accountability Ethical standards are not set by business but by society as a whole; it is the public debate at this interface which is defining the evolving nature of business ethics. Society’s role in determining the ‘unethical’ in business can be seen in the public’s changing attitudes to alcohol and tobacco manufacturers; more recently, this has been extended to the fast food industry. While these industries are legal, how they go about marketing, manufacturing and selling their products is the subject of intense public scrutiny. Society has charged these industries with ethical accountability for the potentially negative impact of their products on consumers. Resource industries have faced these challenges for decades; the communities on whom they depend have exacted high standards of social and environmental

C ONTEXT ,

CHALLENGE AND CHOICE

responsibility as the price of doing business in their backyards. Addressing such stakeholder accountabilities, and being responsive to their needs, is the ethical dimension of the relationship that business has with all external stakeholders. Instead of seeing stakeholders as a cost to the bottom line, progressive business leaders are recognising their legitimate rights to be consulted in the decisions being made that affect them. At the organisational level, business ethics is already being lived out in many ways. For some, it manifests itself in corporate social responsibility (CSR) programs, vibrant and mutually beneficial stakeholder engagements, management by values philosophies inside the organisation, or sustainable business development strategies in the marketplace.

Westpac Case Study The mid-1990’s saw a widespread community reaction to the banking sector against its policy of rural branch closures. For many, the banks became the symbol of corporate greed. As a reaction to this and falling profits, in 1998 Westpac became the first bank to commit publicly to a CSR philosophy. In the years since, Westpac has benefited enormously from its leadership role in CSR advocacy. Since 2000, employee commitment is up 21% and staff turnover has dropped 18%. Customer satisfaction is up in all key sectors, complaint resolution rates are up and market share of total credit is some 240 basis points higher than five years ago. Westpac has 20,000 employees in Australia and has estimated the cost to recruit and train new staff at around $50,000. The 18% reduction in staff turnover has therefore produced immediate bottom-line benefits. As a result of workplace initiatives, the return to work rate for women employees from maternity leave has increased from around 30% to 80%. Westpac has reduced CO2 emissions by 60% which has resulted in large annual savings in energy, fuel and paper costs – with a paper reduction program alone delivering estimated savings of $11 million (The Path to Value Creation, David Morgan, CEO, Westpac Banking Corporation, SIA 2004). The AFR has nominated David Morgan as top business leader of the year in 2003 and 2004 as a result in part of his early CSR leadership. Westpac has topped corporate reputation polls for the past two years and was the global banking sector leader in the Dow Jones Sustainability Index for 2003 and 2004.

75

76

C HAPTER F OUR

For others, it’s about new ways of working with employees, local communities and global supply chains to achieve mutual benefit. For still others, it’s about developing formal codes of ethics and ethics training programs, and nurturing organisational cultures with hallmarks of integrity, responsibility and public accountability. There is no ‘one size fits all’. Every organisation has different pressures, different needs, different rules and different values. These are the building blocks for a sound ethical program – their importance cannot be underestimated. Some organisations have embraced the notion of business ethics wholeheartedly – and this is driving their organisational cultural change programs. Other organisations choose a slower paced program designed to redraw and realign the organisation’s systems with its stated values and stakeholder expectations. ‘A rose by any other name would smell as sweet’, to paraphrase Shakespeare. Ethics then concerns us all; it belongs centrally within the business realm because many of the ethical challenges that employees face are being shaped there. Each organisational member acts both as an individual and as a member of a community of people who make up the organisation; it is this relationship that needs to be factored into the social accountabilities of business to maintain their ‘social license’ to operate.

EXERCISE 3D Ethics – Honing a personal prism One of the most challenging aspects of coming to terms with personal ethical accountabilities is the recognition that we are not alone and do not act alone. While in the developed world we have prospered greatly from the market economy, material progress has come at a cost. Our consumption-based economies have diffused and diluted the ethical dimension of life that is based on our interdependence with our fellow human beings. In choosing how to relate to others we shape the person we become. Consumerism depends on the promotion of individualism at the expense of inter-connectedness with others and their welfare. Material

C ONTEXT ,

77

CHALLENGE AND CHOICE

self-interest is placed ahead of collective social and psychological maturity. As Richard Eckersely pointed out in ‘The challenge of postmaterialism’ (The Weekend Australian Financial Review March 24 – 28, 2005), big business in the United States spends more than $US1,000 billion a year on marketing to consumers, which is about twice what Americans spend annually on education. Another major challenge is recognising that the external world is not ‘fixed’ but is something that is co-created by us through our actions, our personal expectations and projections. Despite misleading credit-card, automobile, real estate and fashion industry advertising, we cannot ‘have it all’. In making our choices we close down other options of what we might have become. Reflecting – to bring our ‘worldviews’ to the surface and understand how we move towards the picture we create of ourselves – is a good first step in honing personal awareness and ethical accountability for the workplace situations in which we find ourselves. Rather than searching for meaning outside ourselves – by what we consume, wear, earn, drive or where we live – through reflection we create a meaningful life by the choices we make. By identifying personal and workplace values we begin to find a way to harmonise our personal, corporate and social behaviour. It is both the challenge and the reward of coming to terms with modern-day business ethics. The table below helps you to explore your personal values prism: ▲ Look at the table of choices presented and circle one from each column that resonates the most with you. ▲ Once you have made your three selections, we invite you to reflect on the sort of world that comes into existence when the majority of people choose as you did. ▲ Given this wider perspective, would you recommend the same choices to your children. Continued

78

C HAPTER F OUR

Moving towards the picture we create of ourselves What sort of person do I want to be? A person lives each day and seeks to enjoy life

What sort of organisation do I want to work for?

What sort of society do I wish to live in?

An organisation that promotes achievement, performance and winning

A society that looks after those that cannot look after themselves

A person who will lead An organisation that a challenging life and promotes learning, pursue demanding goals cooperation, innovation and self development

A community that values social progress and tempers economic instruments to achieve this

A person who makes and values close friendships and strives to be a good friend

An organisation that leads its industry

A community that values wealth, social status and external achievements

A person who is prepared to sacrifice happiness in the short term in pursuit of long term goals

An organisation that values community involvement and is a responsible corporate citizen

A society that values learning, equality, respect for others and community life

A person who is rich and envied by others

An organisation that rewards winners

A society that celebrates individualism

Answers

– write your three selections here:

Personal: Organisational: Social:

Would you recommend the same choices to your children and why?

CC H H AA PP TT EE RR 55

UNDERSTANDING

ETHICAL

PERSPECTIVES The mindfield of personal ethics Ethics establishes who you are and what you stand for. Individuals have an innate need to make sense of the situations in which they find themselves, yet organisational managers often overlook this. Employees also make personal and therefore different interpretations of the same situation or communication than their peers, even within the same organisation. These dynamics give rise to the prism effect that we talked about in the Introduction. Individuals enter the workplace at different stages of personal development; they are at different levels of sophistication in ability to reason and make sense of situations. In any organisation, individual employees are therefore at different stages of moral and ethical development. This personal predisposition interacts with the organisation’s culture to shape an individual’s unique response to the challenges confronting them at work. The relationship between individuals and the context in which they find themselves is a dynamic one. It involves individuals drawing upon both their personal values and their workplace cultural norms to form subjective interpretations and meaning in the organisational context. It is the relationship between these dynamics that ultimately shapes the decisions they make at work. The challenge for organisational leaders is to promote a shared and collective understanding of how to live out the organisation’s stated values rather than leaving these to individual interpretation.

79

80

C HAPTER 5

People live their ethics through their value choices. This chapter reviews some of the ethical frameworks and problem-solving models available to assist people in recognising and responding to the ethical issues they will almost certainly face in organisations.

An employee perspective A fundamental ethical concern – from the latest spate of corporate collapses and misconduct – is that so many employees inside those organisations ignored or turned a blind eye to unethical practices taking place around them. The ubiquitous ‘I simply did what I was told’ is an ethically bankrupt excuse that undermines the sovereignty of every individual’s capacity to make a difference. Apathy is an enemy of ethics. Those who observe unacceptable organisational behaviour yet do nothing, in fact abdicate any sense of responsibility to the victims and become part of the problem. Such co-creation of unethical workplace contexts can easily engender ‘a law of the jungle’ mentality, where the strong prey on the weak and everyone is diminished. The ethical dimension of most behaviour lies in the availability of choices and the potential of some choices to impact negatively on others. Frequently, the decision to act on a choice that may compromise an individual’s sense of personal values, or have an obvious negative impact on others, is seen as unavoidable. Many unethical actions, however, can be avoided if more options are canvassed or more reflection is given to the ramifications of chosen courses of action. There is a wide divergence between what we advocate and what is taught as ethics in many professional associations. With all the time in the world and a sophisticated array of intellectual frameworks from which to choose, applying the principles of philosophers would help us to make ethical choices. However in a world of ‘instant think’, where the pressure to perform reduces decision-making time to nanoseconds, we need to ‘hard-wire’ ethical codes at an intuitive and instinctive level. Workplace training is required to hone employees’ critical thinking skills and ensure that organisational members instinctively apply the organisation’s values in problemsolving situations. Too often, sadly, the history of unethical action and chosen solutions reflects an inability to generate and consider alternative options, an ignorance of available options, or both.

U NDERSTANDING

ETHICAL PERSPECTIVES

Ethics training promotes the deep and sub-conscious grasp of what principles should guide daily behaviour, as well as the decision-making skills necessary to generate alternative solutions. Ethics training enables employees to be forearmed when confronted with an ethical challenge. Unless employees can make decisions instinctually, they and their organisation are vulnerable to the risk of unethical acts. Worse still, when socially conditioned into a culture of ‘win at all costs and damn the consequences’, they will inevitably sacrifice their personal ethical code for that of the expedient climate in which they find themselves. Graphic tales from employees of Enron, One.Tel and Pan Pharmaceuticals are testaments to the insidious culture of ‘win at all costs’ and its consequences. Ideally, the organisation will provide opportunities to hone a set of ethical problem-solving skills as part of a ‘values and ethics’ training session or a ‘leadership development’ module. However, employees also have a personal responsibility to skill themselves and cannot abdicate accountability for their choice of workplace behaviour. The position of ‘We cannot wait until we are out of the workplace to become the sort of person we wish to be’ is an exercise in self-deception. It is at work that most of us will demonstrate who and what we are. Furthermore, since work will take up the major portion of our lives, it will define the person we become by shaping who we are on a daily basis. It has never been more important for each of us to step up to the challenge of defining for ourselves how we wish to behave at work – and to be aware of the personal ethical principles that we will not compromise. Most of our business lives will be as ethically bound as our other walks of life. Choices between honourable and dishonourable acts will confront us here as elsewhere. It is our responses, in both the work and non-work arena, which mould our character and shape the person we become. We must invest personal time in looking inwards to get in touch with the core values we wish to live by. Only through this reflection can we can gain control over the sort of person we wish to be in our external worlds. Ethical dimensions characterising day-to-day workplace activities can be both easy and difficult to identify. What many consider as simply poor workplace practices may, in fact, be unethical practices. It is almost always with very small steps – such

81

82

C HAPTER 5

as falsifying personal resumes, driving while over the legal dinking limit and falsifying sick leave or company expenses – that we begin to corrode our personal ethical standards and tread on the slippery slope of unethical conduct. The expectation, taken for granted, that we should all act ethically – that there is a right way to behave in relation to others – is significant, not least because it is rarely spelled out. In The Psychology of Moral Development: The Nature and Validity of Moral Stages, Kohlberg defined stages of moral development to help people understand how individuals reason in the same situation and therefore respond differently (HarperSanFrancisco, 1984). His six stages of development explained how we make sense of our situations, and suggested we could all locate ourselves along a continuum of moral development. We have adapted his model to suggest types of motivations that might characterise his six stages of moral development.

Types of Motivation in Moral Development Stage 1: ‘Please the Boss’ syndrome – can be seen to flourish in many workplaces. Individuals at this elementary stage of moral development are driven by selfinterest and do what is expected of them because they are afraid of punishment. In addition to office politicking and other ‘suck up’ types of behaviour, this stage of reasoning is what is expected of one to five year-old children. Stage 2: ‘Tit for Tat’ syndrome – is found in highly competitive workplace cultures. Here, self-interest remains important but pragmatism also reigns. Others’ needs may be considered as they are seen to have the ability to impact in either positive or negative ways on the individual. Stage 3: ‘Self Consciousness’ – is manifest in sensitivity to approval or rejection by others. ‘Conformity’ and ‘approval’ become motivating values in making decisions and deciding what’s right. Stage 4: ‘Observe the Status Quo’ and what’s generally regarded as the ‘right thing to do’. Here, conscience and a sense of responsibility influences decisions to uphold society’s laws and general conventions.

U NDERSTANDING

ETHICAL PERSPECTIVES

Stage 5: ‘Personal empowerment’ with a belief that what individuals do counts, but that not all individuals share the same ethical standards. At this stage, people are willing to challenge laws and rules that they find wanting and to champion the interests of others. Stage 6: ‘Principles-Driven’ Typically, individuals subscribe to universal, ethical principles around equality, respect and the dignity of the individual. They invest time in clarifying the personal values and the principles they wish to live by and are emotionally strong enough to act on those values, even if others disagree. Adapted from: Kohlberg, The Psychology of Moral Development, HarperSanFrancisco, 1984.

According to moral development theorists, the majority of adults act out Stage 4 moral reasoning while organisations typically act out values in Stage 3. This gap may well explain why many employees experience value conflicts while at work. For those organisations unwilling to change, the values gap will become even more accentuated as new business philosophies of corporate social responsibility, sustainability and values-based management are promoted. As organisations play a proactive role in the remediation of society’s problems, business leaders will become accountable for Stage 5 reasoning – where interrelationships with others is significant. These early moral development theories were later criticised as being unrepresentative of gender considerations. Later researchers have highlighted how people can also make moral decisions based on feelings – in contrast to the linear and logical mode of decision-making advocated by these early theories. Another shortcoming was that, in different situations, individuals could just as easily choose to operate out of different stages of moral reasoning. Individuals may also espouse one set of values or moral reasoning while acting out of a very different set – remaining oblivious to the inconsistency. We may like to think we would operate in a given way in a given situation but, if such a choice were to indicate a negative consequence for us, we may behave contrary to our expressed values. Ethical investing is a good example. Many people subscribe to the proposition that we should invest or make purchases that support our stated values. However, if such investments or purchases mean they will lose money, some will forgo the values-based choice and decide on price alone.

83

84

C HAPTER 5

Limited as they are, these theories of moral development can act as building blocks to understand more fully how we and others can respond differently to the same situation. The theories make explicit our shared social reality that, although we may all look and sound the same, we can be acting out of very different worldviews and perspectives.

Ethical fitness It’s not enough to understand only intellectually the different ethical perspectives available. Real life situations have a habit of sneaking up on us when we least expect them. We need to have tried and tested our ethical decisionmaking skills before the crunch comes. It’s a bit like training for a marathon; it’s not something we simply decide to do and are instantly capable of doing. We must first train and develop our minds and bodies to respond appropriately to a rigorous experience. Ethical fitness is typically tested when faced with a crisis and that is why it is popularly acknowledged that ethics is the depth dimension of organisations. Both in Australia and overseas, in a number of well-publicised cases, several well-established companies have been ‘tested’ and their responses have indicated their ethical ‘fitness’. When an unexpected ethical challenge confronts an organisation, and the TV cameras are in the company foyer, it usually too late to attempt to respond in a ‘culturally sensitive’ way. It is precisely because corporate reputations are more vulnerable today that the only way to minimise risk is to ensure that all organisational members have an established ethical framework. Employees should know what is expected of them and what they must do in a crisis. This is particularly important in times of rapid change; for example, as new technologies give rise to previously unseen ethical issues. In the face of constant relentless change, it is more important than ever that organisations, their boards and their employees know how to act appropriately in responding to challenges – and how the organisation’s ethical principles and procedures inform such actions. By working with company values and clarifying the boundaries between personal and workplace values, all organisational members can strive to live with integrity and consistency because they know what is important and why.

U NDERSTANDING

ETHICAL PERSPECTIVES

Organisations must now seek to understand the needs of individual employees. When they are helped to understand themselves, they bring the whole person to work. If the group is to achieve more than the individual, each must be able to transcend personal needs and put the organisation’s needs first. As discussed, most of us operate out of a personal set of values, accessed intuitively rather than consciously. Developing ethical fitness involves becoming aware of these personal values, reviewing their applicability to workplace situations and reassessing how they align or jar with the stated values of the organisation. We need only examine the experience of the United States, Europe and in the Australian public sector, to see that workplace ethics is increasingly being audited as an everyday facet of a successful organisation. Organisational ethical systems are in place, ethics training is a substantial industry and ethics is out of the intellectual closet. Rather than a luxury, ethics management now belongs within the strategic management focus of the organisation because it has the ability to drive superior organisational performance. In an age where reputations can be destroyed at the click of a mouse, ethics management is also a significant risk issue. The move to triple bottom line reporting – where organisations introduce company-wide reporting systems to track social and environmental performance formally as well as financial performance – is also building greater organisational awareness of reputational risk as a systemic issue. It shows that organisational culture, rather than policy, determines employee levels of engagement and commitment in exercising ethical organisational behaviour.

Workplace ethical issues Values, attitudes and beliefs - three points of the same triangle Having spent over a decade working and researching the relationship between personal and organisational values and ethical behaviour, it’s clear to us that there’s a direct connection between ethics and values and that most people live their ethics through personal values. We all operate out of a set of personal values conditioned over time. How we view the world has a direct effect on decisions we make on a moment-by-moment basis. We cannot, therefore, separate ethical choices from the values we seek to live out. The high level of employees who disassociate themselves from their current employer is very disturbing. Many defend their presence within an organisation as being only a temporary stop on their way to doing what they really want to do

85

86

C HAPTER 5

– accountants who would be actors; bankers who would be sailors; administrators who want to be musicians; librarians who are writers in waiting; and rank and file employees awaiting fame on a world stage. George Orwell described this brilliantly in his classic novel, ‘Keep the Aspidistra Flying’ (Gollancz Ltd, 1936). These are the heroes-in-waiting, but more common are the people who escape into other worlds while at work; people who bide their time waiting for other opportunities; those for whom the world of work is a distraction because it has not engaged them at anything more than a superficial level. This lack of engagement is symptomatic of many workplaces – the greater the disconnect with their values, the greater the extent of their emotional disengagement. The mindset here is very much, ‘If they don’t care about me, why should I care about them?’ They feel compromised in their places of work and the resultant lack of ‘buy-in’ creates the potential for unethical conduct. When individuals voluntarily subjugate personal values for expediency, it is only a small step to becoming blind to other areas of ethical tension. Thankfully, albeit slowly, business ethics is now considered an essential component of management and accounting disciplines and most universities and business colleges provide some form of training in ethics or corporate social responsibility. It is increasingly recognised that, if unethical behaviour can be learnt at work, so too can ethical conduct. What is not as easily recognised is that attitudes, values and behaviour are three points of the same triangle: change one and you automatically change the other two.

Roads and Traffic Authority Case Study To illustrate this point, two years before the introduction of compulsory seatbelts, the Roads and Traffic Authority (RTA) carried out research into community attitudes. They asked a simple question: ‘Does the wearing of seatbelts save lives?’ The overwhelmingly answer, at about 85%, was ‘No’. However, international research showed conclusively that seatbelts did significantly impact on reduction in fatalities, so Australia introduced the appropriate law. Two years later, the RTA did post-implementation research. They asked the same question: ‘Do seatbelts save lives?’ Again, with about an 85% response rate, the overwhelmingly answer was ‘Yes’. Behaviour had changed the attitude which in turn had changed to values.

U NDERSTANDING

ETHICAL PERSPECTIVES

An important distinction should be made here that seat belt compliance was driven by censure. In other words, the needed behaviour change was enforced by heavy fines for non-compliance and positive reinforcement through high profile advertising. This phenomenon was identified by marketing expert Philip Kotler and Eduardo Roberto in Social Marketing: Strategies for Changing Public Behavior (The Free Press, New York, 1989). There are now well-documented methodologies that encourage recognition of the relationship between compliance and positive reinforcement.

Organisational systems can effectively shape ethical behaviour – by providing rewards and sanctions for preselected actions – so that employees can start to act in ethical ways long before the ethical decision-making process is fully understood or embraced. This was the experience of many managers when environmental legislation made environmental accountability a requirement. In less than five years, through company record collection and data reporting, environmental accountability effectively changed company values systems. Many changed from zero concern or interest in their environmental impact, to a new belief that such accountability was the right thing to do, and that environmental protection was as much an ethical as a legal concern. Such organisational interventions effectively shaped employees’ behaviour choices and, in the long term, the attitudes and beliefs of the individuals concerned. At a bare minimum, organisational systems need to be reviewed to ensure they are not promoting unethical behaviour through neglect or apathy. The success of social campaigns in the workplace – such as those encouraging occupational health, safety and diversity accountability – are proof that you can change beliefs and behaviours at work. Both behaviour and attitude change begin with new information and new awareness of the gaps between what is expected and what is currently happening. Research and training begins this process of employee awareness-building or collective organisational learning. Realigning the organisation’s reward and recognition systems can further reinforce desired behaviour choices. What gets rewarded, gets done. One of the best examples of how values, attitudes and beliefs are intertwined is the Cancer Council’s highly successful campaign in the 1980s aimed at educating parents in particular about the dangers of melanoma. The ‘slip, slop,

87

88

C HAPTER 5

slap’ campaign was one of the most successful in building a virtual ‘firewall’ between children and the 20-somethings in terms of attitudes towards sunbaking. By focusing on successful parenting and encouraging mums and dads to cover their kids virtually from head to toe in protective, UV-safe costumes, the Cancer Council was able to persuade a new generation to adopt a different attitude towards the dangers from too much exposure to the sun. Parents, too, changed their habits and sustain new protective values about going to the beach.

Ethics training Since organisations are culturally diverse and personal values must be respected, a shared understanding of how an organisation’s ethics and values translate into day-to-day behaviour is as vital as any other aspect of management competence. If there is a perceived conflict between the organisation’s stated or espoused values and what employees perceive as their personal values and standards, it is imperative that opportunities are provided at work to reconcile these perceived differences. A marrying together of personal and organisational values, so that employees’ behaviours can be consistent with both sets, can be skilfully achieved as part of a well-developed ethics training program. Such training is not designed to change personal values but to show how they can be harnessed or, if need be, reconciled to the organisation’s stated principles. Any organisational practice that cannot be discussed openly probably involves an ethical component. Once employees are able to recognise that an ethical issue exists and feel safe enough to discuss it openly and ask for guidance, they are engaged in the ethical decision-making process. Gaining the confidence to raise ethical issues, however, is one of the major challenges of any ethical initiative. Many employees fear retribution if they raise concerns and such fears are often well-founded. For this reason, most ethical programs include the development of confidential channels of communication to facilitate maximum employee participation.

Ladder of escalation A colleague recently told the story of a public sector probationary manager who was less than favourably regarded by two more experienced colleagues. The treatment meted out to the probationary manager was less than fair and our colleague described her discomfort at the outcome – the manager resigned and chose another profession.

U NDERSTANDING

ETHICAL PERSPECTIVES

In recanting this tale, our friend said that she felt powerless to do anything to help this young recruit in the face of what was clearly unconscionable conduct. It is clear that there was no ladder of escalation here; we are sure that this is a common experience of those who witness unethical acts. So, what options do you have?

Ladder of Escalation: 4 Steps Step One – Speak up If you see a work colleague being unfairly treated, bullied, harassed or discriminated against, ask yourself, ‘Who can I raise the issue with?’ The most logical person is the victim. Often, the person subjected to unfair treatment blames themselves, or thinks they’re exaggerating the incident. Raise it with them and tell them what you have observed. At least they will feel that they have a sympathiser. Possibly, they’ll even feel emboldened to raise the issue with the perpetrator. Step Two – Escalate the Issue Edmund Burke once said that ‘Evil only exists where (people) of good conscience remain silent.’ The same applies to unethical acts. If you observe a continuation of inappropriate behaviour towards a colleague, it is your duty to raise the issue with someone in authority. Usually, it’s your immediate superior or, in the case of someone who reports to another manager, their immediate supervisor. Step Three – Make a formal complaint If the breech is serious enough, you have a responsibility to draw it to the attention of someone in higher authority. Depending on the structure of the organisation, this may be the HR Department, the GM or a member of the Board. You must also have regard to ‘whistleblower’ protocols in the organisation. Organisations have different attitudes towards those who raise issues of concern. Step Four – Seek independent advice Many organisations today have ethics committees and formal mechanisms for reporting serious breeches of the company’s values and principles. Some have external ‘ombudsmen’ or an independent service offering this facility. Rarely, the Board appoints one of its number as the custodian of the ethical dimension of the enterprise. In any event, consider your options when deciding who is the highest authority to whom you should make an incident known. Continued

89

90

C HAPTER 5

If you follow this simple four-step process, you will at least have the comfort that you did not sit back and watch a fellow human being and valuable colleague being treated unethically in your organisation.

Unethical practices in context In an age of downsizing, reengineering, and crisis management, employee cynicism towards ethics training is perhaps to be expected. Often employees feel that such codes of conduct are just the latest corporate PR stunt: to achieve corporate respectability, or to protect management should corrupt business practices be publicly exposed. This cynicism has its roots within the organisation and how it works. Organisational practices that reflect any or all of the following create contexts where it is possible for employees to learn unethical behaviour at work: ▲ Tacit recognition that codes of conduct are something ‘signed by all but

read by few’; ▲ Inappropriate management responses to unethical incidents, such as

sweeping such incidents under the carpet or paying offenders to leave quietly; ▲ Ethics-training programs driven by legal risk management philosophies and not underpinned by appropriate role modelling by management; and ▲ Reward and recognition systems which remain unaligned to stated organisational values. Symptoms of unethical cultures are also reflected at the individual level, when excuses such as ‘everyone else does it’ or ‘I had no choice’ are used to justify unethical workplace acts. One of the major advantages of company-wide ethics training programs is that they invalidate such excuses or, at the very least, expose them as cultural norms which are given tacit approval – as they follow the example set by senior management behaviour.

Designing an ethics training program Since most ethical issues faced by employees are practical day-to-day issues, ethics training needs to be practical rather than philosophical, and designed to skill participants in practical ethical problem-solving techniques. Such training needs to incorporate typical ethical issues that might arise and use these as the basis of the ethics training program.

U NDERSTANDING

ETHICAL PERSPECTIVES

Ironically, organisations regularly undertake environmental reviews to pinpoint external risks while overlooking the internal risks posed by unethical practices. Potential internal saboteurs can effectively be neutralized or exposed via an ethics training program which incorporates the following features: ▲ Encouragement of adult learning through disclosure and discussion rather

than judgment and blame. ▲ Minimisation of positional power imbalances to encourage partici-

pants to discuss issues and learn by personal experience how colleagues address and respond to similar situations. ▲ Define ‘duty of care’ responsibilities and accountabilities so managers are aware that their positional power brings with it specific ethical accountabilities in the management of people and themselves. ▲ Incorporation of personal and organisational learning components so participants become aware of their personal values and ‘world views’ in the workplace and how these shape their personal responses to workplace situations. In our experience, employees are very cynical about the intent of management in sponsoring ethics training – often seen as an opportunity to abuse psychometric test results. They express dissatisfaction at the abstract nature of the training and lack of perceived personal benefits. Over the years, we have sought to overcome such resistance by developing a guiding facilitation philosophy of win–win. Individuals can change only at their own pace, and therefore organisations can change only at the pace of its individual members. Recognising this, we ensure that learning occurs at the personal as well as the organisational level. That is, participants learn something about themselves as well as the company’s expectations of them. The majority of employees are hungry for such insights. Employees want to learn how the organisation’s stated values impact on their personal value systems and how this in turn shapes their experience of the organisation on a daily basis. This also affects the way they present the organisation to stakeholders. Many discover that, to survive in the workplace, they have developed a workplace persona and effectively become a different person at work than they are at home. Helping employees recognise that they have personally created a persona is the first step in providing opportunities for change. Working through these personal challenges is part of the process of breaking

91

92

C HAPTER 5

down employee resistance to commiting to organisational values and codes. It is also essential that these sessions canvas perceptions of managerial intent and behaviour and how this shapes perceptions of the organisation’s commitment to ethical management. If people don’t feel they are safe to discuss important ethical challenges, the training session will remain at a theoretical level and be of little practical use to participants.

Benefits of developing an ethics program We have a saying that ‘you can’t teach ethics’; that is not to say that ethical conduct and values cannot be learned. In one fundamental sense, the approach to learning about ethics differs from learning other aspects of workplace culture: People need to experience ethical decision-making and to be capable of sensing the meaning of the impact of ethical challenges and alternative courses of action. Instead of fixating on right and wrong answers, training sessions need to be designed to highlight the consequences of non-judgemental decisions. This helps to expose the background context of decision-making, so often taken for granted, which effectively shapes many choices of action. It helps to spread ethical accountability and to build a more robust decision-making framework – one which involves both personal and organisational reflection. Ethical actions become intuitive and instinctive in this framework. This helps to offset the unreflective instinctive response that draws heavily on unchallenged personal frames of reference which, in times of crises, do not represent organisational values. In that sense, therefore, the word ‘training’ is a misnomer. We prefer to use the term ‘awareness-raising’ or facilitated learning. Training initiatives should be structured around either full-blown case studies, or little vignettes or stories relevant to the workplace situation. They do not need to be the magnitude of Enron or HIH to ring true; vignettes can be simple day-today practices in your organisation which spring from misuse of power, assets, interpersonal relationships or denial of corporate financial, social and environmental accountabilities. There are many internal and external benefits to be gained from developing robust ethical awareness programs. We believe that one of the best things a manager can do is to create a climate where their staff think, ‘Is this alright?’ or ‘Should I ask someone?’ – if it falls outside their values training.

U NDERSTANDING

ETHICAL PERSPECTIVES

Specific benefits of ethical awareness programs ▲ Explicit rules enable employees and managers to be held accountable for their actions. ▲ Offset power inequalities by publicly committing all organisational members to support ethical standards thereby enabling employees to raise issues when commitment is not evident. ▲ Leverage off wider society values in reassuring employees of management concerns about promotion of ethical business practices and that employees need not compromise personal standards. ▲ Basis for a high performance workplace culture because rules are aligned to the organisation’s reward systems, enabling trust to flourish. ▲ Safeguard individual dignity which encourages all members to treat each other fairly and with respect. ▲ Significant external benefits by: a) reassuring the public that ethical standards are valued, thereby enhancing the company’s reputation; b) differentiating the company from peer organisations that have not yet addressed business ethical accountabilities; and c) assisting defence of a company’s reputation in the event of an ethical transgression by reassuring regulators, investors and customers that success is achieved through sound management.

Overcoming obstacles to ethical initiatives The cold, hard fact is that businesses in general will not adopt ethical management unless there is a direct bottom-line impact. It is management’s role to make that business benefit obvious. In Chapter 2 we described a University of Sydney metastudy of 52 surveys of corporate social and financial performance over 30 years [Organization Studies 24/3 (2003) 403-411]. There is enough evidence now coming out of research conducted in the CSR arena to show that ethical responses to contemporary challenges bring positive benefits for the organisation and enhance the bottom line. A 1999 survey of Australian employee perceptions of their organizations’ stated values [Drake Consulting Skills/Values Survey (April 1999)] found that, by and large, the Australian workforce has little understanding of or commitment to company values; 66% of the workforce was found to be only marginally

93

94

C HAPTER 5

committed or totally uncommitted to their organisation’s values. The greatest level of commitment came from executive and managers. It was clear that: the further employees are from top management, the less committed they are. These results are hardly surprising given that roughly only a third of companies provided training in this area – despite a well-established link between training and commitment to organisational values and ethical standards. Two other assumptions need to be challenged. Assumption 1: Organisations who commit to acting ethically will somehow give their competitors an advantage. In fact, the reverse is increasingly the case, with positive correlations with success emerging for those organisations who formally manage their ethical accountabilities. Poor ethics can cost the business dearly in reputation and unforeseen costs. Increased litigation, corporate fraud – and a host of other unethical practices invariably resulting in crises on some scale – cause huge financial losses; their resolution consumes valuable management and board resources. In the long term, additional costs are incurred through the organisation’s inability to attract the best employees – as a result of its of poor reputation. Highfliers such as MCIWorldcom, which crashed in 2002 through mismanagement, accounting ‘errors’ and pure greed, have had to change their company name in order to dissociate their current brand from their past behaviour. It is likely that organizations will increasingly resort to this strategy as past unethical actions catch up with them. Assumption 2: ‘Managing for ethics’ is a job for an ethics specialist. Specialists may help provide frameworks but ethics management is essentially a job for managers who must lead by example. Fortunately, leading world companies are showing willingness to become involved in shaping corporate ethical debate by participating in organisational global ethics initiatives, such as those promoted by the Caux Round Table. This is an international network of business leaders working to promote a moral capitalism (see www.cauxroundtable.org). Its member organisations are keen to develop and abide by new organisational charters that raise the bar for corporate

U NDERSTANDING

ETHICAL PERSPECTIVES

behaviour around the world. These innovators in ethical accountability prove that, by working with their people to develop a shared commitment to ethical principles, their ongoing business success is ensured. Perhaps the biggest barrier to universal acceptance of new ways of managing ethical and responsible business has been the absence of a set of benchmarks. Like the quality movement of the 1970s, it is only a matter of time before a global standard emerges – the Caux Round Table is already working on one. Other organisations too are working on standards and guidelines to help managers measure the ethical dimension. They include: ▲ The World Business Council for Sustainable Development:

www.wbcsd.ch The World Business Council for Sustainable Development (WBCSD) is a coalition of 175 international companies united by a shared commitment to sustainable development via the three pillars of: economic growth, ecological balance and social progress. The Council’s activities reflect the belief that the pursuit of sustainable development is good for business and business is good for sustainable development. ▲ The Global Reporting Initiative: www.globalreporting.org

The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines. ▲ AccountAbility: www.accountability.org.uk

AccountAbility is an international membership organisation committed to enhancing the performance of organizations and to developing the competencies of individuals in social and ethical accountability and sustainable development. These organisations recognise the rights of a range of stakeholders beside shareholders, and provide tools to measure the organisation’s ethical ‘footprint’.

Organisational ethics audit Like any other aspect of organisational performance, it is advisable to conduct a preliminary audit of how the ethical dimensions of your organisation stand up to scrutiny. Here is a simple framework for carrying out an ethical audit. As with other reviews of operational performance, such as financial audits or marketing audits, the purpose is to expose gaps in the system and to provide

95

96

C HAPTER 5

you with indicators of how your organisation might be compromised - so you can plan to address them.

Ethics audit An ethics audit aims to: ▲ Map an organisation’s adherence to its own values and ethical statements. ▲ Typically provide the information needed to develop a creditable ethics training resource. ▲ Map organisational members’ behaviour as well as perceptions as to what gets done or in their organizations. ▲ Highlight conflicting messages from the top of the organisation and how members can resolve these. Areas covered by an ethical audit include: ▲ Assessing employee commitment to stated organisational values; ▲ Examining perceived gaps between an organisation’s stated values and how things happen; ▲ Developing a shared understanding of how values should be lived and what success looks like; ▲ Testing the robustness of existing organisational systems supporting ethical behaviour; ▲ Revealing the level of employee morale.

Independence (Directors) Independence is safeguarded if directors are not substantial company shareholders, ex-employees or in a commercial relationship with the company, such as advisor, supplier or purchaser of its products and services.

Conflicts of interest A conflict of interest can exist or arise when: ▲ personal interests interfere with company interests; ▲ an organisational member takes action or has personal interests that may

interfere with their objective and effective performance for the company; ▲ an organisational member, or member of their family, receives an improper

benefit as a result of their position with the company; ▲ entertainment or gifts are accepted; they should be disclosed to the

company upon receipt.

U NDERSTANDING

ETHICAL PERSPECTIVES

Use of company assets Organisations today have no greater asset than their reputation. Often it is not made explicit to organisational members that part of their employment contract is to do nothing to harm the organization, including its reputation. This means refraining from criticising the organisation in public arenas or inappropriately representing the organisation, as can happen when members appear drunk or drive recklessly. Additional assets to be protected include company resources and equipment, and expenses or travel which should not be for personal use by any member of the organisation.

Confidentiality Organisational members may have access to information that is the property of the organisation and should not be disclosed to other parties. Confidential information includes all client information, business plans, computer programs, unpublished financial data, market research and the organisation’s internal communications. Disclosure of confidential information is unethical as it breaches the trust the organisation has placed in you. It can also be illegal by contract or statute.

Duty of care Company policies – especially in the areas of workplace safety, religious beliefs, discrimination and harassment – are designed to enhance the welfare of all employees and should be observed, even if at a personal level you may disagree with them. There is a responsibility to behave in ways that consider others’ needs and do not sacrifice others’ welfare for personal gain. This also extends to the organisation itself; it is generally assumed that members will safeguard the reputation of the organisation by adherence to company policies in this respect.

Ethical frameworks Ethical frameworks can be both simple and complex. They are designed to assist the user to reveal and identify ethical issues that are not always obvious.

97

98

C HAPTER 5

Ethical tests The simplest and most universal is ‘The Sunlight Test’ which involves answering three critical questions: ▲ Would you be happy if others acted in the same way towards you? ▲ Would you be prepared to have your behaviour reported in the press? ▲ Would others approve of your actions?

If the answer is ‘No’ to any of these three questions, chances are there is some ethical dimension that is causing discomfort – which needs to be resolved before acting. This might mean that more information is necessary before deciding how to act, or that alternative options need to be canvassed. Another quick ethical test is canvassing the ‘Golden Rule’, generally known as: ‘Do unto others as you would have them do unto you’. If you would not be happy with the same decision if performed on you, then chances are that decision should not be made in relation to others. Other tests include the: Newspaper test: How would this look on the front page of a newspaper? and the: Test of time: How would behaviour be viewed in a year, five years, or even 20 years?

Ethical decision-making models More complex ethical decision-making models include the Six Step model which is an adaptation from today’s leading models and probably the most comprehensive and helpful when faced with complex ethical problems.

Six Step Model Step 1: Define the problem. Identify the context. Use the W5 formula: what, when, where, who and why?

U NDERSTANDING

ETHICAL PERSPECTIVES

Step 2: Identify and consider stakeholder perspectives on the matter. Step 3: Identify underlying principles, laws and organisational policies and what courses of action uphold what principle. Step 4: Specify and evaluate alternatives and decide preferred option, based on consideration of the above. Step 5: Get another opinion. Step 6: Road test decision by checking against critical criteria.

The Queensland Public Sector model is useful for its simplicity.

Queensland Public Sector Model ▲ ▲ ▲ ▲

Is the act legal and consistent with government policy? Is it in line with organisational goals and code of conduct? Is it the proper thing to do? What will the outcome be for my organisation? My colleagues? Others? Me? ▲ Can I justify my action? ▲ Would the act stand up to public scrutiny?

The Mary Guy model is a favourite as it speaks to the new values emerging amongst Generations X and Y employees as well as baby boomer advocates of corporate social responsibility.

Mary Guy Model (1990) Rule 1: Consider the wellbeing of others, including non-participants. Rule 2: Think as a member of the community, not as an isolated individual. This emphasises loyalty, integrity, respect for others and responsible citizenship. Rule 3: Obey, but do not depend solely on the law. This emphasises integrity and responsible citizenship. Rule 4: Ask – ‘What sort of person would do such a thing?’ Rule 5: Respect the customs of others, but not at the expense of your organisation’s ethics. This emphasises accountability, fairness, integrity and respect for others.

99

100

C HAPTER 5

EXERCISES Differentiating between Personal and Organisational Values This exercise is divided into two parts – you will need to get feedback from a close friend to complete part 1.

Part 1: Personal Values Profile 1a A value is a principle that you believe guides your life. Examples are to be authentic, to obey the law, to be of service, to make a difference, to protect your family, to have fun and so on. On a blank sheet of paper, identify the top four values you use when making decisions in your personal life. Once you have done this, can you then seek to prioritise them into: ▲ What will you never compromise? ▲ What might be altered given different contexts? 1b Now, ask a friend who has known you for some time to identify the top four values they associate with your character. If possible, also ask them to put them into priority order. 1c Compare the two rankings and reflect upon any reasons that might account for any differences.

Part 2: Organisational Values Profile 2a Identify the top four values promoted by your organisation and compare these to your personal values. 2b Can you reconcile any tensions that might exist between your personal and your organisation’s stated values? 2c How do you know if and when each value set might take priority? 2d What organisational system is designed specifically to help you answer these questions? 2e Have you ever witnessed a colleague breaking the rules? For example, by falsifying their expenses, short-circuiting approval procedures, logging into the system as somebody else to access data. ▲ What do you feel you could have done? ▲ What does the company policy say?

CC H H AA PP TT EE RR 66

BECOMING

COMFORTABLE WITH

THE ETHICAL DIMENSION We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. George W. Merck (Merck & Company – Tenure: 1925–1955)

Developing ethical frameworks Society as a whole decides what is ethical business practice – and this evolves over time in response to changing social values. For this reason business leaders must ensure that they expose themselves to a diversity of people inside and outside the organisation so that they don’t become blindsided to change by mixing only with likeminded individuals. At a social level, business is about a set of relationships and interrelationships. It is the nature of these relationships that shapes the ethical landscape of organisational life. As a community of people, each business has to think about and decide on the core values underpinning its organisational cultural model and the relationships it spawns.

101

102

C HAPTER 6

Social arrangements that determine the business culture and the context which emerges are too important to be left to chance. The nature of these relationships and accountabilities will often be determined by the nature of the products and services offered, as well as their potential negative impact on stakeholders. In this way, business is driven by a set of shared principles that offsets the absence of a set of universal ethical principles. An example of formalised culture shaping can be found in many contemporary mining and construction companies. Occupational safety has become a priority value and specific organisational systems have been developed to drive it. This priority value transcends national boundaries and has become a global standard for these companies. Leading oil companies similarly promote inclusive practices involving external stakeholder consultation as the typical way they conduct business worldwide. They openly recognise and accept accountability for their impact on local communities and seek to ensure that local needs are heard and accommodated where possible. Organisations can be seen today to be at different stages of evolution in their strategic management of the ethical dimension of their business impacts. For this reason, it is always dangerous to make the sort of sweeping statements that sell newspapers, such as ‘Business and ethics don’t go together’. It can be said that management typically selects one of several approaches to business ethics: ▲ ignore it’; ▲ ‘do the legal minimum’; ▲ ’adopt a pragmatic approach’ so as to be seen to be responding to society’s

expectations of ‘the right thing to do’; or ▲ consciously adopt a ‘principles–based approach’ that sees management identify and act on its stated values in pursuit of its business goals. The Business Ethics Maturation Cycle diagram illustrates these stages.

Ignore it! This approach sees management turn a blind eye to how business is achieved, by monitoring only financial performance. So long as the organisation meets its targets, managers are free to run their divisions in any way they want.

B EING

Ignore it!

d rnal an Inte

Training for principle-based decision making

Board sets ethical tone

Legal Compliance

External focus

external foc

us

Cooperation on global issues: corruption; labour; environment Authentic ethical decision making

103

COMFORTABLE WITH THE ETHICAL DIMENSION

Inauthentic ethical decision making

Pragmatic responses to external demands

BUSINESS ETHICS MATURATION CYCLE

Do the legal minimum! A legal minimum approach uses the law to set its business ethics standards and typically, it is the letter of the law and minimum legal compliance that is observed, rather than the spirit of the law.

Be seen to do the right thing! A pragmatic approach sees management publicly espouse those values seen to be popular at the time. Adherence to these values, however, rises and falls with the share price. The organisational context itself is managed according to a different and constantly changing set of values.

Take the high road! A principle-based approach is the most challenging approach because it depends on continuous learning and flexibility to stay in touch and respond to changing social expectations about corporate accountability. It also depends on winning the hearts and minds of employees, skilling them to commit voluntarily to the organisation’s values and to use these values to guide their behaviour. Typically, it involves developing Codes of Ethics or Statements of General Business Principles to guide individual organisational member behaviour, without seeking to prescribe behaviour for every situation.

104

C HAPTER 6

Instead, it relies on the discretion of individuals to make the right choice in accordance with the company’s stated values. Progressive multinationals favour principle-based approaches because they appreciate the diverse needs of their operations. They recognise that it is management behaviour and ethos that determines culture rather than a complex book of rules. Notable leaders of organisations such as Philips, Merck, Unilever and Protocol & Gamble have also stepped up to the challenge, seeing themselves as key world players who can use their business skills to address some of the great social and environmental challenges of our times. At the same time they develop new markets for their products and services by pioneering new socially responsive ways of bringing their products to consumers no matter what corner of the world they may be in or what price point local consumers can afford. In 2002, UN Secretary General Kofi Annan created a cross-partnership taskforce of business, government and social leaders to address eight Millennium Development Goals, which represented some of the most pressing social needs of the day: Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria, and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a global partnership for development Unilever and Proctor & Gamble have partnered with others to address Millennium Goal 4 to reduce child mortality by two-thirds. The stories of these two multinational corporations demonstrate how business can harness its resources to promote ethical outcomes for society, as well as promoting its financial bottom line.

B EING

105

COMFORTABLE WITH THE ETHICAL DIMENSION

Unilever Case Studies Hygiene: Diarrhoea causes 3.3 million deaths a year, mostly among children, and deaths from diarrhoeal diseases represent about a third of total child deaths under the age of five years in developing countries. This is the equivalent of one child dying every ten seconds. History shows that the use of soap greatly improves hygiene levels. The World Health Organisation (WHO) estimates that hand-washing with soap and water can reduce diarrhoeal diseases by up to 48 per cent, preventing over one and a half million children from dying annually. Making soap available at an affordable price to the developing world is Unilever’s goal. In India, their Lifebuoy soap operation is financing (at a cost of 750,000 Euros a year), an education initiative to teach one billion Indians over five years about basic hygiene habits, including washing hands with soap. It involves health educators working with mothers, teachers, and government and community leaders to spread the message. In 2003 alone, the programme covered 15,000 villages and reached 70 million people. It is the single largest rural health and hygiene educational programme ever undertaken in India. The scale of the project gives this initiative the potential to make a measurable impact on child health. Malnutrition: One of the key causes of poor health in the developing world, in particular on the Indian sub-continent and in sub-Saharan Africa, is micro nutrient deficiency. Insufficient levels of iodine, iron, zinc and vitamin A in the diet are the direct cause of such health problems as stunted growth, mental retardation, damaged eyesight, still births and child mortality. Unilever’s initiative in this area includes the development of a number of vitamin- and mineral-enriched low-cost foodstuffs packaged for mass consumption by the world’s poor. Sale to developing and emerging markets accounts for 34 per cent of total sales, up from 20 per cent at the beginning of the Nineties.

Proctor & Gamble (P&G) Case Studies ‘We believe that we can build our businesses while contributing our part to help address some of the toughest global health and social issues.’ George D Carpenter, Director Corporate Sustainable Development P&G 2004 Sustainability Report Continued

106

C HAPTER 6

Hygiene: Access to clean drinking water is still one of the outstanding needs of millions of people around the globe today. In partnership with others, P&G has developed a low-cost water purification tablet, affordable to poor people around the world. Called PUR Purifier of Water, the product treats even heavily contaminated drinking water so it meets WHO standards. It has also pioneered three different business models to enable maximum affordability and therefore access to this new technology, including a commercial model in Pakistan, a social model in Haiti, and an emergency relief model in Ethiopia. Malnutrition: P&G has also sought to address the problem of ‘hidden hunger’ in developing countries by developing a vitamin-fortified drink (NutriStar) to provide nutrition supplements on a global scale. This is a low-cost powdered drink mix containing all the vital micronutrients growing children need. Early tests in developing countries have found that it has had a measurable impact on the physiques of children and also led to greater concentration and achievement in school. Since July 2001, P&G’s earnings per share have grown more than 40 per cent cumulatively in the past 3 years, and the company’s cumulative total shareholder return has increased more than 80 per cent since July 2001.

Corporate protocols The past decade has seen the emergence of a proliferation of company policies and statements designed to clarify and make transparent the values and principles by which organisations intend to be guided and judged, including: ▲ ▲ ▲ ▲ ▲ ▲ ▲

Codes of Ethics Codes of Conduct Statements of Duties to Stakeholders Statements of Corporate Values Statements of General Business Principles Stakeholder Commitments Board Governance Charters

Although each is a different document and driven by different objectives, what unites them is recognition by management that they can shape the social context and impact of the organisation. In drafting these codes and statements – also referred to as organisational protocols – business leaders seek to

B EING

COMFORTABLE WITH THE ETHICAL DIMENSION

hone an appropriately adaptive organisational personality and boardroom culture that is responsive to the needs of the time. Typically these organisational codes have been developed in a piecemeal and fragmented fashion, rather than seeing each initiative as part of the general evolution of the organisation’s accountability system. Lack of synergy between the various protocols can lead stakeholders to call into question the authenticity of each. Given the degree of external scrutiny now given to the governance of organisations, organisational leaders are being encouraged to invest time in reviewing and updating existing protocols to ensure integration, and mutually to reinforce pledges that can effectively articulate the organisation’s values and guide behaviour. As every business is different, each organisation will respond in its own way to its environment; so the content of these protocols will vary from organisation to organisation. Enlightened companies recognise that taking a rules-based or compliance-based approach doesn’t work because they do not inspire people to rise to the challenge of balancing selfinterest with the needs of others. Instead they ‘shut down’ choice and human potential. So too, a system that depends wholly on extrinsic control and supervision becomes inherently weak because success depends on there being enough people who understand, are skilled and are willing to commit to the same standards. The days of commanding blind obedience are gone. These days employees want to be consulted in the development of policies that affect them. More than this, they wish to commit to values that inspire rather than curtail them – it is in responding to these social needs that principle-based approaches are more effective.

Codes of ethics and codes of conduct – what’s the difference? Ideally, a Code of Ethics outlines the values and principles management wishes to promote to safeguard its business activities. It provides general guidance for decision-making that can be applied to any situation, even those not anticipated by management. In also pulls together and clarifies company policies that may have evolved over time and provides a central unifying organisational protocol.

107

108

C HAPTER 6

There are therefore significant differences between the intent of Codes of Conduct and Codes of Ethics. A combined document that seeks to unite the two is at best a poor compromise that serves neither well. A Code of Ethics attempts to both shape and reflect an organisation’s culture and encapsulates the core values designed to guide personal decision-making. It outlines the ethical framework by which management intends to manage the business. A Code of Ethics goes beyond legal compliance to capture the ‘spirit’ of the law and focuses attention on the principles implicit in all other company policies. A Code of Conduct is much more detailed and prescriptive than a Code of Ethics and encapsulates the organisation’s legal obligations. In contrast to the Code of Ethics or the Statement of Duty to Stakeholders, it is essentially an internal document designed to make explicit employee accountabilities to the organisation and to the law. Typically, a Code of Conduct includes sections dealing with: ▲ occupational health and safety, harassment, bullying, discrimination and

diversity legislation and EEO obligations; ▲ conflicts of interest – how to recognise and respond to these; ▲ gifts and benefits – how to respond to these, as well as tolerance levels

regarding what is acceptable; ▲ confidentiality, employee responsibilities and accountabilities; ▲ use of the organisation’s resources with examples of improper use such as

private phone calls, email and web activity; ▲ employee accountability with regard to the company values or ethics code. Codes of Conduct, when used in isolation, can inhibit organisational members from developing their own ethical standards because the Code seeks to tell people what they can and cannot do. In situations not covered by the Code of Conduct, individuals are left to decide for themselves. All too often, Codes of Conduct become compliance protocols and employees search for loopholes. Classically, these promote the letter of the law and not its intent; it inhibits the development of trust. In Trust: The Social Virtues and the Creation of Prosperity (The Free Press, New York 1995) Fukuyama reminds us: ‘Past a certain point, the proliferation of rules to regulate wider and wider sets of social relationships becomes not the hallmark of rational efficiency but a sign of social dysfunction. There is usually an inverse relationship between rules and trust. The

B EING

COMFORTABLE WITH THE ETHICAL DIMENSION

more people depend on rules to regulate their interaction, the less they trust each other and vice versa.’ The inability of many organisational managers to distinguish between a Code of Ethics and a Code of Conduct is perhaps the reason Australian organisations have tended to take a compliance-based rather than the high road approach to managing organisational culture and its ethical dimensions. As situations become more unpredictable and complex, Codes of Conduct become inadequate. Codes of Ethics are more appropriate for managing unpredictable futures and the impact of discontinuous change. A Code of Ethics is designed to deal with such ‘unknowns’ by resting on principles rather than prescription. In a business world that now promotes personal accountability as the basis of selfrespect, self-reliance and self-actualisation, individuals are being encouraged to take control and to equip themselves with the intellectual and emotional capacity to make the right decisions. Power is being devolved to the lowest rungs of the corporate ladder and initiative encouraged and rewarded. Technology has provided a valuable and increasingly essential tool for selfdevelopment. Employment contracts today are, at one level, simply gateways to a world of online learning that has shifted the emphasis from command and control to ‘Shift/Ctrl/Enter’. Organisational learning and authority are measured in mouse clicks and milliseconds. We can no longer dictate what people should know, think, say or do. Failure to recognise this dynamism of organisational life can mean that Codes of Conduct quickly descend into ‘conduct unbecoming’. Typically a Code of Ethics, and the values it promotes, provides guiding principles about: ▲ appropriate business behaviour and the standards to be adhered to as a

community of individuals; ▲ accountabilities to internal and external company stakeholders; and ▲ accountabilities towards broader communities and the natural environment.

What should a Code of Ethics look like? A Code of Ethics is usually a short document, often less than 1000 words in length, so that employees can easily remember its core intent. The process of developing the Code of Ethics is more important than its content. Critical to

109

110

C HAPTER 6

gaining maximum commitment is widespread consultation on relevance and content. An outside consultant should not be given the responsibility for drafting the Code. Neither should it be the sole responsibility of management removed from the workplace at an executive retreat – then handed down as commandments. In developing ethical codes, organisations can leverage off the values to which employees subscribe in their non-work lives, as members of the wider society. Such values and norms are seen as the acceptable way to live life outside the workplace and thus should find commitment to practising them within it. To have integrity, the Code of Ethics must reflect the reality of things that happen or should happen daily in the organisation – the behaviours that its systems reward and recognise, and not those that go unnoticed. The process used in the development of the Code determines its credibility and effectiveness, and is therefore more important than the code itself. Ideally it should be as inclusive a process as possible, involving the organisation researching and reflecting on how it shapes people’s behaviours at work. An essential part of the process is to identify the organisation’s shadow side and cast light on negative behaviours allowed to exist within it. Focusing on the gap between stated values and actual day-to-day behaviour can reveal perhaps unintended consequences of an existing organisational culture, consequences that have become its ‘undiscussables’. Brought into the light, they can be dealt with in positive ways. This process creates an opportunity for genuine organisational learning as a community, about behaviour that silently stymies individual and organisational potential, and ways to move forward. The process of developing and rolling out the Code also determines the extent of eventual employee commitment – and that is a golden rule for success. The more consultation, the more commitment. Attempts to make adherence to Codes mandatory simply don’t work. Forcing employees to sign statements of commitment sows the seeds of resentment. Commitment, like trust, cannot be mandated; it needs to be earned. The critical first step is to nurture a culture of inclusion not compliance, where people feel safe to raise ethical challenges without fear of retribution or that their careers might be jeopardised.

B EING

111

COMFORTABLE WITH THE ETHICAL DIMENSION

The least effective approach to developing a Code of Ethics is to copy another company’s code yet sadly, this often happens. The practice causes widespread cynicism amongst employees and almost certainly sabotages the success of any ethical initiative. Each organisation has its own unique social context and corresponding needs to be recognised and addressed by the Code’s content. To ensure integrity, key organisational managers must model the Code’s principles and they must be willing to have their performance measured against it. This is what employees naturally do, whether or not management recognises it. Codes of Ethics will sit meaninglessly on the page if management is not accountable for practicing the Code. For many of us, its takes some sort of crisis in our lives – a divorce, health scare, the loss of a job – to force us to turn inward, reflect on our values and identify what we really want out of life. Developing a Code of Ethics can be a similar experience for the organization, involving much uneasiness during the process. Discomfort is to be expected; it is a positive sign that the organisation has moved out of its comfort zone and is learning new information on how it operates. This in turn can help shape its change program to achieve higher performance through ethical conduct. A management approach to the development and maintenance of a Code of Ethics would typically include the following six processes:

Management Approach to a Code of Ethics 1. Involvement Here, the process very much determines success. As many stakeholders as possible should be consulted as involvement is the most effective way of winning commitment. Consultation also identifies relevant ethical issues. Consultation needs to be undertaken annually to ensure the Code remains responsive to emerging issues. Reference to other organisational protocols must be made to ensure synergy and mutual reinforcement among all company policies.

Continued

112

C HAPTER 6

2. Relevance A Code of Ethics must speak to the day-to-day reality of the organisation. It must begin therefore with a diagnostic of the organisation’s existing way of doing things and the values that guide this. This is achieved by undertaking an ‘ethics audit’, typically conducted by an outside consultant who can remain above the organisational political life. The draft Code of Ethics is then ‘workshopped’, with all operating companies and executive management with its content open for discussion and negotiation. Very often this discussion and clarification time reaps the most benefits for organisations as it helps to hone organisational members’ skills in recognising and addressing ethical challenges. 3. Content and clarity A typical Code of Ethics contents might include: ▲ ▲ ▲ ▲ ▲

The CEO’s message (to give endorsement from the highest level); A brief definition of business ethics; The principles underpinning the ethical guidelines designed; Core values; Specific behaviours to be promoted as a demonstration of the organisation’s values (in other words, how one would recognise values alignment and, conversely, what behaviours would be considered inconsistent with those values); ▲ Identification of key stakeholder groups and reciprocal obligations characterising the relationship between them and the organization. The Code of Conduct may be published in conjunction with the Code of Ethics. 4. Embedded It is vital that the Code of Ethics is supported within existing organisation management systems. Integrity is safeguarded by ensuring: ▲ The board and chief executive officer endorse the Code; ▲ A strategy is developed to integrate the intent of the Code of Ethics into the current business systems – in particular, the recruitment, reward, recognition and review systems; ▲ There is appropriate role modelling by senior management; ▲ The Code is supported with appropriate training.

B EING

COMFORTABLE WITH THE ETHICAL DIMENSION

5. Communication All stakeholders must be made aware of the Code of Ethics by: ▲ Inclusion as an integral part of the company’s induction program; ▲ Translations into multiple languages to reflect the organisation’s stakeholder composition and for use in overseas subsidiaries; ▲ Employees receive a personal copy of the Code of Ethics and attend training; ▲ Major subcontractors and joint venture partners receive copies, and are invited to participate in the launch of the Code; ▲ Inclusion of the Code of Ethics in the organisation’s annual report. 6. Maintenance Since organisational culture is created on a daily basis, critical organisational systems include: ▲ The appointment of a very senior manager to champion the ethical dimension, who is responsible for the administration and oversight of support training, monitoring and reporting; ▲ Role modelling by management; ▲ Annual training to support the spirit of the Code; ▲ Development of grievance procedures; ▲ Regular review mechanisms; ▲ Corporate recognition for outstanding ethical conduct.

Benefits of a company-wide training program 1 2

3 4 5 6

Employees are skilled in identifying possible ethical challenges in the workplace. Employees are able to apply the organisations’ protocols in resolving dilemmas and develop a practical understanding of why these protocols are introduced in the first place. The protocols and training program establish a language within the organisation whereby employees can raise issues of concern. Ethical compliance can be monitored. Investment in the program becomes a public symbol of the company leaders’ commitment to managing organisational ethics. The Board can be reassured that management is concerned with the organisational culture promoted by the organisation’s systems.

113

114

C HAPTER 6

Statement of duties to stakeholders The Statement of Duties to Stakeholders gives formal recognition to the fact that the organisation impacts on a wide range of people external to the organisation. Key stakeholders in an organisation can include: Internal Customers Parent company Employees Contractors Management Board

External Shareholders Suppliers and competitors Government/regulators Wider community The environment Future generations

Each duty statement attempts to establish the basis for a relationship between the organisation and a particular stakeholder group. Supplier expectations, for example, are made clear by indicating what standards are expected. The company also clarifies what suppliers can expect in return so that the reciprocal accountabilities of each party are made transparent.

Company value statements and statements of business principles Regretfully, the term ‘ethics’ has become associated with a ‘do-gooder’ mentality – with its advocates treated as some form of latter-day evangelists wafting in and out of organizations, saving corporate souls; or more accurately, acting as executive exorcists! Jokes aside, the negative association with the word ‘ethics’ turns some away from what is now an essential element of business – the duty to respond appropriately to the expectations of society. If we were to say ‘ethos’ rather than ethics, it would not have the same evocative connotations. And yet the word ‘ethos’, from which ‘ethics’ is derived, means ‘shared fundamental traits, the fundamental and distinctive character of a group, social context, or period of time, typically expressed in attitudes, habits, beliefs’. When seen in this light, ethics, values and principles are one and the same. For this reason, Codes are often enshrined in corporate commitments such as ‘Company Values’ or ‘Business Principles’ statements. Both seek to achieve the same objectives as Codes of Ethics and make transparent for employees the values that should underpin their behaviour in the pursuit of business goals.

B EING

COMFORTABLE WITH THE ETHICAL DIMENSION

Stakeholder commitments A two-step process – identifying stakeholders and their needs and then developing policies and initiatives in response to them – shapes stakeholder commitment statements. Such statements can be found on corporate websites and within corporate social and environmental reports. They make explicit how the organisation intends to engage with its stakeholders.

Stakeholder Commitment Process Step 1: Identifying stakeholders and their needs ▲ Senior management support for stakeholder consultation and commitment by management to act upon feedback from stakeholders. ▲ Identification and prioritisation of stakeholders and development of a long-term vision of the desired relationship with each stakeholder group. ▲ Engagement with critical opinion formers in each key stakeholder group. ▲ Investment of time to build trust by using skilled facilitators to ensure the focus is on listening to stakeholders. ▲ Co-design of the consultation process with stakeholders to ensure it is as easy as possible for stakeholders to participate. ▲ Focus on what’s held in common and willingness to give bad news as well as good news to stakeholders. ▲ Monitor progress against objectives; celebrate successes with critical stakeholders. Step 2: Developing policies and initiatives in response Stakeholder statements include commitment in the following areas: ▲ The envisioned relationship between business and society. ▲ The envisioned relationship between the organisaton and the natural environment. ▲ Employee working conditions. ▲ Conditions in suppliers’ factories and farms, locally and globally. ▲ Payment policies in developing countries. ▲ Obligations to local communities where subsidiaries are located. ▲ Commitments to address issues of concern to society.

Board charters The purpose of a board charter is to formalise and document the board’s own key policies, processes and practices. A charter ensures greater clarity and

115

116

C HAPTER 6

accountability in determining the role of the board and helps to define the boundaries between board and management by providing a clear outline of key board processes and policies. The board’s key corporate governance documents form its corporate governance framework and typically comprise the company’s Articles of Association, by-laws or constitution and the board and board committee charters. Examples of matters which can be included in a board charter are: ▲ An outline of the board’s corporate governance framework, including its

▲ ▲ ▲ ▲ ▲ ▲

ethical strategy and the relationship to products and services of the business; A summary of the board’s goals; The CEO’s key responsibilities and current key performance indicators; The process for board access to senior management, stakeholders and information; The right of a director to receive external professional advice; The policy for approval of external directorships; and The process for evaluation of the CEO.

The goal of all these initiatives is ultimately to raise consciousness of the ethical implications of individual actions and to clarify what is acceptable and what’s not. At all times it should be remembered that these Codes are not merely leaflets to be thrown into ‘induction packs’. They are a critical, organisational culture building block designed to equip new employees with the skills to make informed decisions on behalf of and in the best interests of the organisation. The bottom line of any business ethics training program is to promote certain preferred ways of making decisions and taking action in the workplace. Many multinational corporations and peak industry groups have taken Codes one step further and are developing their own sets of principles to assist their industry to be self-regulating, no matter where in the world members find themselves working. Their internal reflection processes are building a body of agreed principles which in turn guide their industry in self-regulation. These protocols can be both general and specific to a business or industry. The main ones are listed below where the Global Reporting Initiative (GRI) is emerging as the global standard.

B EING

▲ ▲ ▲ ▲ ▲

COMFORTABLE WITH THE ETHICAL DIMENSION

The Caux Round Table Business Principles: www.cauxroundtable.org Global Reporting Initiative Guidelines: http://www.globalreporting.org Universal Declaration of Human Rights: www.un.org/Overview/rights.html OECD Guidelines for Multinational Enterprises: www.oecd.org International Labour Organisation Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1997): www.iso.org

Form over substance The downside to the proliferation of Codes of Ethics and Conduct is that too many in business today rely on these to set the ethical tone, and then become complacent about the need to embed ethics as a core element of organisational operations. Without appropriate training to develop individual awareness of why and how to use these protocols, they remain words that are flat on the page with no day-to-day meaning for most employees. The daily reality of organisational life, however, is that ethical dilemmas and challenges are typically contextual – they creep up on both managers and employees in incremental steps. That is why regular ethics training and performance appraisal is so important. Ethical dilemmas can take the form of: ▲ turning a blind eye when someone bypasses policy; ▲ fudging company data to protect colleagues; or ▲ allowing others to take shortcuts to get the desired results.

These practices rarely involve systemic corruption, deception or fraud, but effectively they work to undermine the ethical foundations of an enterprise – soon posing significant risk management issues for the organisation and its stakeholders. People at work often find themselves doing the wrong things for what they think are the right reasons because they have not been trained in skills to respond appropriately to possibly competing tensions between: ▲ loyalty to colleagues and telling the truth; ▲ protecting the organisation’s reputation and protecting the community’s

interests; or

117

118

C HAPTER 6

▲ safeguarding jobs and efficiently servicing shareholders.

Contextual pressures to perform can mean that shortcuts are taken and that sometimes people and services are compromised. For most workers, the sad reality is that ethical challenges come about as a result of a culture of indifference or a set of behaviours that model an ‘if only we had the time’ managerial mindset. Without appropriate training to make sense of ethical frameworks, employees find themselves in the dark. Basically good people can find themselves compromised by their organisational contexts to such an extent that they find themselves learning unethical behaviour at work. Australian Public Sector organisations are leading the way in building internal capacities for their people to feel comfortable about publicising and addressing the ethical tensions inevitably faced at work. Building on a sound foundation, both the Victorian and South Australian State Governments have borrowed from international precedents and taken a whole-of-government approach in developing workplace ethics programs that seek to move their employees beyond compliance to organisational ethics as an essential managerial and employee workplace competency. Ethics in the public sector context is not seen as a luxury but as an essential competency in maintaining accountability and retaining public confidence in public service integrity. These public sector organisations have developed integrated ethics training programs with the capacity to embed ethics as a core competency of employee contracts. Their approach is that the starting point in ethics training is to recognise that managers and employees within the same organisation can perceive and experience the organisation in different ways, and therefore need to have their distinctly different concerns heard and acknowledged. The most important factor is the individual’s need to make personal meaning around stated values. Therefore a ‘bottom up’ as well as ‘top down’ training approach is taken.

B EING

COMFORTABLE WITH THE ETHICAL DIMENSION

Workplace ethics is not simply seen as encouraging people to do the right thing, but rather helping them to grapple with the inherent tensions existing between competing values and the political and organisational imperatives around short- and long-term goals. These issues are inherently difficult to deal with because there are no obviously right or wrong answers. The competing demands of modern organisational life are at the core of ethics complexities in the workplace. Personal and organisational values are discerned through a managed process of ongoing reflection in which boundaries between personal and organisational values can be identified and explored. Having exposed the potential for tensions, boundaries can be redrawn to highlight when and where it is appropriate to apply each value set. This approach responds to people’s need to make meaning within their individual contexts and for opportunities to develop a shared understanding of the organisation, its values and how these can be lived at work. Ethics moves beyond rhetoric to an active, living engagement with values and principles. Experience shows that people can learn ethics at work, but to do so requires an investment in creating safe places where employees can raise issues of concern. ‘Head stuff’ is important in raising awareness of the ethical dimension – after all, if people don’t know the rules, they don’t know if they’re breaking them. But what is critically important in shaping an ethical culture is a genuine focus on the ‘heart stuff’. People make meaning from a set of personal values that may, but do not necessarily, intersect with the organisation’s stated values. If management does not provide a forum for open discussion of personal challenges, then people will continue to operate out of their personal values when faced with ethical challenges, and the organisation is at the risk from the vagaries of individual decision-making. For public sector organisations such as those in Victoria and South Australia, ethics has moved to centre stage as a mechanism for driving standards of behaviour upwards and spelling out what it means to be a public servant – to serve many stakeholders and deal with the competing priorities of the political machine and social expectation. For business, ethics is a salutary lesson in public accountability, as its very existence depends on the goodwill of the public. Where businesses still struggle with the notion of earning their social ‘licence to operate’, public authorities have been required to embrace the notion as their raison d’être – while seeking to balance equity with efficiency.

119

120

C HAPTER 6

EXERCISES Codes of Conduct and Codes of Ethics 1

Have you received training in your organisation’s Code of Conduct or Code of Ethics? If so, what was the major benefit to you?

2

Can you identify the major reasons why your organisation has developed a Code of Conduct?

3

Do you refer to the Code of Conduct when making decisions at work? If not, what values do you use to make your decisions?

4

What are the differences between your organisation’s Code of Ethics and Code of Conduct. Which Code is more meaningful for you and why?

5

If you are using your personal values to make decisions at work, can you identify the major risks: ▲ For your employer? ▲ For yourself?

6

Can you identify the four key areas where your organisation’s Code of Conduct should most obviously be applied?

Use the space below to describe in one paragraph your ideal of your organisation’s ‘social licence to operate’:

How does this ideal measure up against your organisation's: 1. Mission, vision & values statement: 2. Code of Ethics: 3. Code of Conduct: 4. Actions by Board members: 5. Actions by your managers: 6. Actions by you colleagues:

CC H H AA PP TT EE RR 77

VIRTUE

ETHICS AND THE RISE OF

THE MEANING ECONOMY Virtue ethics in tomorrow’s business world Leadership, the learned ability to inspire ‘followship’, has qualities that reflect more the character of the individual than the particular type of organisation that they head; or the form of authority they wield. Peter Shergold, Secretary Department of the Prime Minister & Cabinet (2004)

Who versus What The symbol of the acting profession is the mask of Janus, a Roman image with two faces, one smiling, the other frowning. The metaphor conjures up the tension between joy and tragedy, or the two personalities of an actor. It conveys the message that we can be two people simultaneously. This has long been the popular image of the corporation and business people. Indeed, until this decade, the dominant belief was that it is only natural for people to display different personalities at work to those in their private, out-of-work hours.

121

122

C HAPTER 7

The notion of behaving one way at work and subscribing to a different set of values in social life is no longer tenable. Our values have evolved significantly. Today, we assess people of sound character to have authenticity at all levels and in every sphere in which they operate. It is only with such consistency that healthy relationships flourish – because consistency enables people to know what to expect from themselves and others. The stress of being two different people no longer appears to be worth the personal anguish. Today, many yearn to be true to their personal values while at work but the image of duplicity lingers. Many corporations come to be known by their members as espousing one personality to the outside world whilst displaying another, more sinister face away from the public gaze. Many, highly cynical of the business world and the types of behaviour that appear to be natural outcomes of the competitive pursuit for profits, frequently describe business reasoning or morality as ‘Machiavellian’. They believe that whatever behaviour or action it takes to get business is justified by those in business. For example, if the ‘greed is good’ philosophies of the 1980s and 1990s made it acceptable to applaud avarice as a business success motivator, then it was okay to own up to that. By contrast in the 21st Century naked greed is frowned upon; pragmatic business people now project a different image, including the idea of being responsible corporate citizens even when underlying behaviours and assumptions in the organisation may not have changed significantly. Machiavellian behaviour takes its name from Niccolo Machiavelli (1469–1527) who wrote that expediency, or being prepared to do whatever is necessary, was one way to succeed. In his treatise, ‘The Prince’, he sets out principles for rulers to achieve the results they desire; advice given in a nonjudgemental and pragmatic manner, which is notably devoid of any ethical dimension. Decisions made in such an ethical vacuum have come to be associated with ‘Machiavellian-type behaviour’. Machiavellian behaviour then is typically ascribed to the ruthlessness associated with unethical business practices, such as:

V IRTUE

▲ ▲ ▲ ▲ ▲ ▲

123

ETHICS AND THE RISE OF THE MEANING ECONOMY

insider trading; theft by those at the top of shareholder dues; theft by those at the top of employee superannuation funds; deceit about destruction of environment, culture and values contexts; deceptive marketing practices; and the ‘win at all costs’ mentality.

These practices may be attributed to a Machiavellian decision-making framework. Machiavellian traits are also ascribed to individuals, especially those at the top, who espouse one set of values in the public arena but are discovered to act out of quite a different set of values privately; values which promote self-interest at the expense of the organisation. Organisational systems over which such individuals have presided are held up to public scrutiny and described as ‘greedy’, ‘egotistical’, ‘selfless’ or ‘amoral’. Typically, they reflect the personalities at the top. As the Dutch say, ‘a fish rots from the head’. The Enron story exemplifies this phenomenon.

Ethics at Enron – a Case Study by Rushworth M. Kidder In principle, ethics is fairly straightforward. But in practice, the tangle of threads within an ethical issue can be maddeningly complex. Case in point: Enron, where ethical issues are so numerous that one hardly knows which thread to pull. Should the focus be on Enron’s chairman and chief executive, Kenneth L. Lay? In a September 26 online session with employees – before the company restated almost $600 million in earnings in November, then filed for bankruptcy in December – he told employees that Enron was ‘fundamentally sound,’ that ‘the third quarter is looking great,’ and that ‘we’re well positioned for a very strong fourth quarter.’ Was that honest? Or should the focus be on the Enron board? In 1999, it took the extraordinary step of waiving the firm’s code of ethics in order to permit the kind of off-balance-sheet deals that hid massive debt from public view. Was that responsible? Continued

124

C HAPTER 7

Perhaps the real story is in the company’s policy on retirement accounts. When employees received Enron stock in those accounts, they were prevented from selling it – except for top executives, who could dump their shares as the crisis mounted. Though many employees saw their retirement savings vanish in Enron’s bankruptcy, the policy was perfectly legal. But was it ethical? Was it respectful of employees and their families? Institute for Global Ethics – Ethics Online: January 21, 2002, Volume 5, No.3

With confidence in the business world and its leaders at an all time low, a weary general public now looks much more closely at how corporations are run. ▲ ▲ ▲ ▲ ▲ ▲

Who is behind that corporation? What is the board doing? What does its brand represent? What values does it stand for? How should its actions be judged? How are its executives rewarded or reprimanded?

These are fundamental questions by consumers of household brands and professional services companies. If they are not comfortable with the answers, people vote with their wallets and find alternative suppliers. As employees, they vote with their feet and seek other employment opportunities. Global connectivity and business visibility have helped pierce the corporate veil, shedding light on individual and corporate character traits.

Individual character Instead of focusing only on actions, accountability has extended to include assessment of company members as ‘good’ or ‘suspect’ characters. For those in high office, individual ‘virtue’ is now a matter of public concern. Thousands of negative media pages have addressed failed corporate titans such as Enron’s CEO Kenneth Lay, Quintex CEO Christopher Skase and, more

V IRTUE

ETHICS AND THE RISE OF THE MEANING ECONOMY

recently, HIH Director Rodney Adler and CEO Ray Williams. Media interest highlights the fascination of the public for the personal character of those behind the company name. The sacking of Boeing’s CEO, brought in to clean up its reputation after public exposure for uncompetitive activities, brought into focus the need to cleanse the corporation when individual actions are at odds with its stated values. When a CEO has a secret affair with a fellow executive, the public outcry is not in response to the lasciviousness of the act but a reaction to the contravention of the firm’s stated values of honesty and transparency. To his credit, the Boeing CEO went quietly without crying foul, but the subsequent media frenzy suggests that many are in denial about the relationship between personal and organisational character. Recent failed corporate ‘leaders’ have been the target of character assessment as well as financial scrutiny. In the case of high profile American lifestyle guru Martha Stewart, although the very human stories behind her actions enthralled global audiences, she was eventually convicted and sent to prison for lying and not, as many assumed, for insider trading. She was never, in fact, charged with insider trading but only with making false statements and obstructing justice during investigations. The ‘naming and shaming’ tactics being used in business scandals and company collapses suggests that a focus on character and personality will become an even more popular prism to assess the ethical fitness of the business world. From a virtue ethics perspective, what is seen as the right business decision will be one that accords with what a person of ‘good’ character would deem appropriate or what’s accepted by the general public as being ‘the right thing to do’. Similarly, the division between personal and professional accountability has converged to the extent that unacceptable behaviour in either arena will call into question both character integrity and suitability. The doctrine of ‘private vice/public virtue’ is no longer acceptable to a cynical society exasperated by the profligacy of public office.

125

126

C HAPTER 7

With the democratisation of capital, it is no longer faceless shareholder money but increasingly ‘our’ money in terms of ‘superannuation payments’ and ‘Mum and Dad’ investment dividends that business is risking. The barometer of public acceptability has swung inexorably towards ‘warm and sticky’. Virtue ethics applied in the case that led to the resignation of former Australian Governor General, Archbishop Hollingsworth. In this case, decisions made in his professional capacity in the church – albeit in what he determined to be the long and distant past – called into question his suitability for the state office of Governor General. This is becoming a distinctive feature of modern public life. The concept of public virtue/private vice has no place in 21st Century society, as was seen in the famous case of the then Lord Archer - now humble Geoffrey Archer – whose attempts at concealment of a felony were exposed in Court, resulting in a gaol term, loss of political office and stripping away of his peerage. Such public accountability has now extended to the business world and its leaders. In 1998, Daniel Goleman’s research (Working with Emotional Intelligence, Bantam Books, New York) linked the emotional intelligence of leaders to the performance of their organisation and shows how the leadership style of the person at the top tends to replicate itself at every level in the organisation. The more a leader exhibits competencies like: ▲ ▲ ▲ ▲

empathy nurturing motivational skills positive interpersonal skills

the more stable and positive the emotional and social climate of the organization, and the better the business performs, as measured by profit growth, growth in sales, return on investments and achievement of business goals. Conversely, when leaders do not have employee confidence or commitment, organisational performance suffers. The most important message system in any organization, therefore, is the behaviour model of those at the top. The ethical dimension of emotional intelligence is that it is about being ‘other’centred rather than self-centred: it focuses on relationships; the way you treat others. Organisations characterised by a social context that respects and rewards dignity to individuals and values the importance of the group make it possible for people to feel empowered and accept personal accountability.

V IRTUE

127

ETHICS AND THE RISE OF THE MEANING ECONOMY

The success formula of mutual respect, which recognises the needs of people as well as the organisation, and seeks to create a win/win context within this interrelationship, has long been the hallmark of the world’s most successful companies. In practically every industry category, organisations such as HewlettPackard, IBM, Toyota, SouthWest Airlines and American Express focus on maintaining the ideal organisational cultural context where people can succeed. Instead of trophy CEO’s, the leaders of tomorrow will return to these tried and tested formulae and seek to become listeners rather than talkers; thinkers as well as doers. Leaders of tomorrow will again focus on seeking to make their people feel good about themselves so they in turn give their best to the organisation.

Organisational character The organisational character shaped and reflected by organisational culture is also under public scrutiny. Now measured in annual national surveys of ‘best companies to work for’ and global surveys of ‘the most responsible corporate citizens’, business leaders are being held to account for their social impact inside as well as outside the organisation. Companies with strong and easily discernable ‘characters’ are seen to demonstrate visible commitment to required values and principles. Global companies like Google, Intel, Virgin Airlines, Volvo, Apple Computers, Cadburys, Guinness, Levi Strauss, Timberland, Harley Davidson, 3M, Patagonia, Interface Carpets and Marks & Spencers are known around the world as much for the values they stand for as for the products they sell. Here in Australia, companies like Blackmore’s, the BodyShop, Australia Post, Westpac, the ABC, Esprit, Sanitarium and Rivers enjoy similar public admiration. In fact companies like Virgin Airlines, Google, the BodyShop and Timberland are fast becoming known as ‘Virtue Corporations’ and are much sought after as employers by up and coming generations, who are as equally concerned with how business is done as how much money is made.

Google Google’s founders, Larry Page and Sergey Brin, personify the value set of the new generation of business leaders. Environmentally aware – one drives an electric car and the other doesn’t have a car – they make Continued

128

C HAPTER 7

grants available to all employees to make their homes energy-efficient and use the carbon credits to offset their corporate environmental impact. They are also socially aware and committed to making the world’s information available to as many people as possible. To maximise opportunities for people to share in Google’s public float, they pioneered a new business model and held a public auction of Google shares rather than selling them exclusively to institutional shareholders.

The emergence of global standards as encapsulated in the Global Reporting Initiative (GRI) sets a benchmark for socially and environmentally responsible business practice and, in so doing, helps to define good organisational culture and character for Boards prepared to listen – as well as for a society which anxiously keeps watch.

Generational change New generations are challenging the old assumption of different rules and standards for commercial transactions. Generation X (born 1962–1977) and Generation Y (born 1978–1994) indicate that they are not prepared to compromise beliefs and standards to assume a workplace set of behaviours different to those guiding their personal life. Contemporary social researchers have mapped the emergence of a deep yearning for a sense of belonging in the workplace that haunts the baby boomer generation of employees. Their successors seem determined to avoid earlier compromises. They seek out employers who enable them to be authentic at work, with integrity for values they adhere to outside the workforce. Environics International surveyed the views of 1200 undergraduates across the world’s 20 largest economies in 2003 (http://erg.environics.net). They found that three in five people want to work for a company with values consistent with their own. Eighty one per cent of young people had a strong belief in the power of responsible business practice to contribute, over time, to overall bottom line profitability. If, as psychologists claim, we move towards the pictures we create of ourselves, here is an indication of what may well become a new self-fulfilling prophecy where corporate social responsibility will drive superior organisational performances because it has engaged with employees’ hearts and minds.

V IRTUE

ETHICS AND THE RISE OF THE MEANING ECONOMY

Eye on Australia (Grey & Sweeney, April 2004) ▲ Consumer trust in corporate Australia is at an all-time low. ▲ Consumers say companies are ‘greedy, selfish and heartless’. ▲ Consumers picture a successful company as: • good place to work = 87 per cent; • giving back to the community = 85 per cent; • fighting for a cause = 73 per cent; • caring about its people first and money second = 70 per cent.

With increasing labour shortages in developed countries and fierce competition for talented employees, corporate responses to new values will be an important differentiator for organizations seeking to position themselves as ‘employers of choice’. It’s not just the ‘up and coming’ generations, however, who are challenging the worldview of self-interest and material progress at the expense of community progress. In The Cultural Creatives: How 50 Million People Are Changing the World (Harmony, New York, 2000) American researchers, Paul H. Ray and Sherry Ruth Anderson have identified a social movement which they have labelled ‘cultural creatives’ – those deliberately turning their backs on the consumption track and turning inwards towards more spirituality, and also placing greater emphasis on relationships, environmental conservation, ecological and social sustainability. Ray and Anderson estimate that as many as one quarter of all Americans can be described as ‘cultural creatives’. Similar patterns of changing value priorities and a drift from unfettered consumerism towards quality of life values have been identified in Australia and European countries. In 2003 Clive Hamilton and Elizabeth Mail of The Australia Institute published groundbreaking research in ‘Downshifting in Australia: A sea-change in the pursuit of happiness’: The preoccupation with money and consumption comes at an increasing cost. Many Australians consider that money-hunger conflicts with their deeper values and preferences and results in a society that is too materialistic. There is evidence that many people are deciding to accept lower incomes and consumption levels in order to have more balance in their lives, a phenomenon known as downshifting. This report is the first systematic study of downshifting in Australia. http://www.tai.org.au

129

130

C HAPTER 7

We do not have to look far for examples of people who have made similar lifestyle choices and ‘downshifted’ by deliberately swapping some of their economic prosperity for opportunities to better develop other areas of their life. For these individuals, economic benefits are no longer correlated with social wellbeing and, for those that have made the choice, the majority report overwhelming happiness with their decision to sacrifice income in order to increase the depth of their existence. Qualitative research amongst major Australian organizations, conducted by the authors during the period 1990–2000, point to a significant values gaps in the workplace as follows:

Value gaps in the Australian workplace What employees sought

What employers provided

An organisational culture that: • Provides clear and consistent rules for success • Facilitates work/life synergy • Promotes community involvement • Nurtures positive personal identity and public social status • Meets affinity needs • Promotes collaboration and cooperation

Organisational cultures that: • Are characterised by volatile leadership and changing priorities • Encourage middle managers who frustrate diversity and flexibility • Deny individuality and reward only group think • Undervalue the feel-good factor • Promote competition at the expense of collaboration

Managers who: • Listen and respond • Mentor and support staff • Promote personal learning • Inspire and lead by example • Create context for success • Promote ethical context and personal values match • Translate the big picture

Managers who: • Focus on reward outputs • Divide and rule • Avoid feedback • Create fiefdoms • Practice favouritism • Practice Machiavellian ethics • Say one thing while modelling something else

For themselves: • Personal learning on the job • Friendship, respect and inclusion • Opportunities to self-actualise • Enjoyment and ability to belong to something worthwhile • Adult-to-adult communication

A climate that: • Promotes uncertainty • Denies personal needs at work • Stifles expression of feelings • Lacks vision and is short-term • Uses top-down communication • Resorts to bullying

V IRTUE

ETHICS AND THE RISE OF THE MEANING ECONOMY

Rise of the ethic of care We suggest that the values currently associated with the corporate social responsibility and environmental movements are symbolic of the sort of world the next generations wish to produce; that their worldview priority rests in an ethic of care. (This ethic was identified by Carol Gilligan in 1982 – see Chapter 1.) They are actively searching for greater alignment of corporate values with personal values focusing on the character of business and the people in it. What may seem a passing fad is in fact the first bending reed in the gathering breeze of a new era in workplace ethical standards. The winds of change are challenging the supremacy traditionally given to the ‘ethic of rights’ and ‘property rights’, in promoting instead ‘an ethic of care’. More and more people are now prepared to challenge inequalities perpetuated by the status quo and to search for new ways to respond to those in need. The response may be at a local and personal level by: ▲ investing in ethical funds; ▲ buying only brand names from publicly recognised, responsible corpor-

ations whose products are certified to be ‘ethically sound’; or ▲ purchasing locally produced foodstuffs; or globally by: ▲ supporting Greenpeace against whale slaughter in Southern Ocean sanctuaries,

logging of the Amazon Basin and old growth forests in developing countries or prohibiting dumping of toxic pharmaceuticals and agrichemicals on third world nations; ▲ participating in marches against the insensitivities of the World Trade Organisation (WTO) to the socio-economic plight of impoverished countries; or ▲ spontaneous outbreaks of compassion in the wake of national disasters such as the 2005 South Asian tsunami and earthquake in Pakistan. There is little doubt that there already exists a new global compassion, and citizenry prepared to speak out against marketplace inadequacies. Powerful global NGOs such as the Worldwide Fund for Nature, Greenpeace, World Vision and Oxfam have helped sponsor a global public recognition that the economic market is a social invention designed to serve society and enhance its wellbeing. If the economic system is not serving society’s needs, then it can be challenged and changed. These activist organisations have helped to direct and coordinate local grass roots

131

132

C HAPTER 7

movements, as well as orchestrating global protests, directing personal efforts into a concerted campaign to demand that business realign with social progress.

Work and character Where the needs of the world and your talents cross, there lies your vocation Aristotle (384 – 322 BC) The notion of ‘character’ and ‘character building’ has become more important to generations born into a CNN world where the slow pace of humanity’s progress around the globe is beamed into living rooms. It is no longer possible to plead ignorance about the plight of our neighbours. If business can clone the animal kingdom, genetically modify the food chain and patent nature, is it unreasonable to expect it to turn its attention to the needs of over half the world’s citizens who eek out a precarious life, without access to sufficient food and water? Bolstered by ‘the ethic of care’ championed by modern day ‘rights’ activists (including Australian opinion leaders Richard Neville and Peter Singer; world political opinion leaders like Mary Robinson and James Wolfson; film stars such as Tom Robbins and Richard Gere and pop music icons including Bono, Sting and Bob Geldof), popular concern for the welfare of planet Earth, its inhabitants and future generations, has never been more widespread and at the same time networked to take action. Such connectivity and communitarian orientation contrasts with the individualism of the baby boomer generation of the 60s and the ‘Me’ generation of the 70s, weaned on ‘an ethic of rights’. Today’s expectations are reflected in the decision-making criteria new generations apply to employment decisions. They are more concerned with the character of the organisation and its CEO than they are with salary and conditions. Research conducted by the Aspen Institute in 2002 found that 72 per cent of MBA students believed that the personality of the executive was very important and the most significant factor contributing to corporate scandals. An ACIRRT paper by Darryl Hull and Vivienne Read in 2003 (Simply the Best Workplaces in Australia) indicated that the percentage of job-seekers wanting CSR employers is growing, especially amongst those in Generation Y. In 2004 an Australian graduate survey by High Flyers Research Ltd found that the top characteristic which final year students sought from an employer was ‘social responsibility’: 44 per cent of respondents considering it very important when making organisational selections;

V IRTUE

ETHICS AND THE RISE OF THE MEANING ECONOMY

and 34 per cent wanted to work for companies that were ‘environmentally responsible’ and allowed them to ‘give something back to the community’. A 2005 Newspoll survey highlighted that four out of five Australians (78 per cent) would prefer a great organisational culture over a good salary, with no response variation between those from low or high income households. At 92 per cent, nearly all respondents admired balanced lifestyle over success, with the figure remaining stable across all sectors. It seems a sea-change in expectations of corporate personality has quietly taken place and reshaped the workplace ‘psychological contract’ for many employees. Within that expectation lies the potential to reshape tomorrow’s society irrevocably. At a global level, a survey of over 800 MBAs from 11 leading business schools has found that 97 per cent were willing to forfeit an average of 14 per cent of expected income to work for an organisation with a better reputation for corporate social responsibility (Business Respect Newsletter No. 77, 29 July 2004). Another survey found three in five respondents would select an organisation that demonstrates similar values to their own (Fast Forward 2003). European respondents believed a reputation for ‘treating people fairly’ was the most important factor in determining ‘employer of choice’ status. This increasing body of research points to a values-shift away from materialism and towards intrinsic satisfaction in a meaningful life. It indicates a seismic shift in how generations see themselves and what they expect from their work and life. It suggests that a virtue ethics approach, emanating from a focus on the kind of person we want to be or seek to become, is the more appropriate ethical framework from which to understand how Right and Wrong are now being defined. The emphasis is on individual character and, in particular, on personal strengths and weakness as a human being. The notion of ‘virtue ethics’ was originally championed by Aristotle (384–322 BC) and is concerned very much with ongoing social evolution and what is possible when we purposely seek to evolve as human beings. It begins from a space of personal accountability for choices – it asks the deeper question: ‘How should I live?’ It seems that now that we have unquestioned material success, new generations are looking to a more spiritual ideal and are embarking on Aristotle’s journey of self-actualisation. They are concerned to develop both their potential nonmaterial and material ways. It might suggest that we will see a return to that oldfashioned idea of ‘vocational career choices’ where vocation is about honing

133

134

C HAPTER 7

meaningful working careers and contributing to the progress of society, rather than remaining content with a one-dimensional pursuit of personal wealth. Contemporary researchers – such as Australia’s Richard Eckersley (The Weekend Australian Financial Review March 24–28, 2005) – see virtues as concerned with building and maintaining human relationships and social attachments. Vices are unrestrained individual wants and desires that enslave the person and alienate them from concern for others. In aspiring to live life attuned to social and personal virtues, and avoiding selfish behaviour, we hone our character and equip ourselves for ethical reasoning and an ethical life. Instead of taking each ethical challenge as it comes and debating the appropriate course of action, situation by situation, persons concerned with virtue ethics prepare themselves for ethical challenges they will inevitably face. Those concerned with virtue ethics seek to inform and skill themselves to know the right thing to do before the challenge arrives. Nelson Mandela and the Dalai Lama are the best contemporary illustrations of this – which may be why they are universally admired. In the business world, leaders such as Anita Roddick, founder of the BodyShop, Ray Andersen, founder of Interface Carpets and John Elkington, cofounder of SustainAbility – and in Australia, Dick Dusseldorf, founder of the Lend Lease Corporation, Maurice Blackmore, founder of Blackmore’s, Graeme Wise MD, founder of BodyShop Australia and David Morgan CEO Westpac – have also demonstrated how virtue ethics sit comfortably with bottom line priorities. A distinguishing feature of virtue ethics is that character traits are relatively fixed and predictable. If someone is known for their honesty, it would be expected of them that they’d remain honest, no matter in what situation they found themselves. Virtue ethics looks at the whole person and their relationships with the world. It is this degree of effort and sacrifice that makes people of character the subject of public admiration.

Sound character is more of an achievement than an inherited trait At an organisational level, a virtue approach requires both a vision of what is possible for the organisation and willingness to invest in developing its people’s resourcefulness. They can then withstand short-term challenges and bring that vision to fruition – as demonstrated by the realisation of the founding vision of the BodyShop Corporation.

V IRTUE

135

ETHICS AND THE RISE OF THE MEANING ECONOMY

Organisations have an increasingly important role to play in helping skill their members – so that work and personal life have a coherence that enables individuals to grow from workplace experiences.

Doing Well by Doing Good – A Virtue Company BodyShop Case Study The BodyShop International Plc is a cosmetic and toiletry retail company founded by Anita and Gordon Roddick in 1976. Today, it operates in over 2000 outlets across 50 countries and enjoys annual retail sales of almost 700 million pounds. The BodyShop brand has become synonymous with social and environmental responsibility and valuesbased management. A commitment to clearly articulated values to drive its social environmental and economic performance has been a feature of the company since its outset, so this organisation makes a good case history to show how commitment moves from the realm of rhetoric to being embedded in its way of doing business. The organisation has identified five core principles to inform its ethical approach to business: 1 2 3 4 5

Protect Our Planet Defend Human Rights Support Community Trade Activate Self-Esteem Against Animal Testing

These principles form the basis of its business policies and guidelines as well as informing social campaigns and community programs, including a: ▲ Global campaign to ‘choose positive energy’ in cooperation with Greenpeace; ▲ Business Leaders Initiative on Human Rights – a 3-year program; ▲ Trading Charter to promote fair trade, in operation in 23 countries; ▲ Stop Violence in the Home campaign – part of the self-esteem principle; ▲ Against Animal Testing Certification. Continued

136

C HAPTER 7

The company has a Director of Values, reporting directly to the Chief Executive and with overall responsibility for directing BodyShop’s social and environmental program. At board level, the overall strategic direction of the company’s values is reviewed periodically in consultation with the Director of Values, who is also a member of the Executive Committee. Operational performance reviews, as well as stakeholder perceptions and expectations, inform the strategic objectives set against each value and aligned to business objectives.

Character formation is, after all, a lifelong process and, since most of us will spend most of our time in workplace organisations and interfacing in multiple ways with the business world, the behaviour that gets modelled and rewarded will shape individual as well as organisational character. Virtue ethics adds to traditional principle-based ethical approaches, by looking at both actions and character. Although virtue ethics may start from a different perspective than behaviour-based ethics, the outcomes are typically close. The same ethical conclusions can evolve from either a character or behaviour focus. A new corporate story is unfolding which focuses on the wider stakeholder relationships in which the organisation is engaged. It is actively promoted from within the business arena by employees, as well as being championed by progressive organisation leaders. At the social level, this focus is driven by world opinion leaders, from all walks of life, who have joined together to advocate for a more humane world – where the benefits of business can be shared by greater numbers around the planet, and where the planet itself can be protected from excessive commercial exploitation. Human rights issues, in global supply and the production chain, are the current battleground in which the legitimacy of the corporate world is being fought. Familiarity with the Global Compact – the new collaborative approach to global issues that encourages cross-sector partnerships and is based on the UN Declaration of Human Rights – will be as important to corporate success as knowledge of the Pareto principle is to management. It is for this reason that we close this book with the UN’s Human Rights Declaration – we see it as the blueprint for the sort of virtuous society to which we might aspire, with a way of doing business that promotes an inclusive global marketplace and underpins social progress.

V IRTUE

ETHICS AND THE RISE OF THE MEANING ECONOMY

Such a business ethics approach would see organisations providing workplace opportunities for members to reflect and become aware of their assumptions and priority values so they are conscious of internal contradictions. With such opportunities, members can become aware of how they unconsciously co-design their workplace contexts (and the potential for conscious choice). In this newfound awareness lies a potential source of organisational transformation where traditional boundaries between self, organisation and society dissolve and it becomes clearer that it is in everyone’s best interests to work collaboratively. Instead of organisations, employees and community members being notionally separated, their interdependence – and the dynamic tension of each others’ insights, needs and expectations – is recognised as a gateway to doing business that responds to the needs of the time. The biggest threat to mankind’s survival is ourselves and the choices we make in isolation from each other. The sustainable organisations of the future will recognise their relationship obligations and demonstrate how they are engaged in building a better world, inclusive of a much wider group of stakeholder needs. Customers, employees, communities and nations wish to share business success in all dimensions – socially, environmentally, spiritually and globally. With great power comes great responsibility as well as opportunity. There has never been a better time for business to deliver on its promise and create benefits for all.

EXERCISES 1 2 3

4

Identify three people in the world today that you most admire and the reasons why. What virtues can you associate with these people? Is there a synergy between their personal and professional life? Is it acceptable to be a different person at work and in your personal life? If so, what might be the consequences for you: ▲ Personally ▲ Professionally If you are a Generation X (born 1962–1977) or Generation Y (born 1978–1994) employee do you think the rules apply to you? If not what can you do about it?

137

138

C HAPTER 7

Answers 1. Who are the three people you most admire and why:

2. Their virtues – personal and professional: • Personal values:

• Professional values:

3. Personal and professional values impacts: • Work values impact at home by:

• Personal values impact at work by:

4. How do these rules apply to me?

What can I do?

CC H H AA PP TT EE RR 88

ETHICS

AND DOING BUSINESS IN

CHINA

The superior man understands righteousness; the inferior man understands profit. Confucius (551 – 479 BC)

When things are investigated, knowledge is extended. When knowledge is extended, thoughts are made sincere. When thoughts are made sincere, the heart and mind are rectified. When the heart and mind are rectified, the personal life is cultivated. When the personal life is cultivated, then the family is regulated. When the family is regulated, the state will be in order. When the state is in order, there will be peace throughout the world. Confucius (551 – 479 BC) Holy Confucian Analects translated by James Legge With the inexorable growth of China as the superpower of the 21st Century, Australia and other countries will have to learn to understand a marketplace that rests on very different assumptions about ‘the right thing to do’. While we do not intend to turn this ethics primer into a primer for Chinese business ethics, we cannot ignore the growing importance of business relationships with China and the need for greater understanding as a basis for a successful relationship.

139

140

C HAPTER 8

This chapter seeks to present an overview of Confucian ethics as they relate to business dynamics and how these impact on trading relations between East and West. Indeed, there is much we need to understand about the Asian approach to business in order to deal with the complexities of business in this region. It is not just a one-way relationship. The Government in Beijing is learning quickly how to adjust the levers of growth in a capitalist world. The authorities are currently struggling to deal with the social consequences of rapid growth. There are an estimated 150 million under-employed rural workers for whom jobs must be created. The Southern provinces are struggling to hold onto increasingly disillusioned workers who are growing tired of the relatively low wages and isolation from family that is entailed in ‘feeding the factories’ of the south. There is an imbalance of wealth between North and South, and the coastal provinces and the hinterland. There is no question that China will achieve sustained growth in GDP of around 8 per cent per annum and that they will dominate world trade for the next 30 years. (China already accounts for 60 per cent of current world shipping.) The impact that this will have on world economies and trading partners is significant, which is why Australia has rushed to commence trade negotiations and the US economy continues in deficit. China, in the meantime, has slowly turned its sights on Europe, South America and the former Soviet Union, as well as countries like Iran, to source raw materials and debt-financing arrangements to lessen its dependence on US-backed economies.

A Confucian business ethic In contrast to the individualism promoted in many Western countries, Confucian philosophy focuses the ethical debate on how to organise society to promote stability and collective welfare. It gives pride of place to collective rather than individual welfare and recognises the interdependence of humans; that how we treat each other determines the quality of the society that emerges. Confucian ethics converges the public and private realm into consideration of the possible humane realm. Here private and public good are seen as interdependent, with family being an essential part of this realm as it is in the family that virtues, correct relationships and consideration for others are learnt. From the Confucian perspective, ethical business requires business leaders to give thought to the well-being of all people, much like those who argue from a stakeholder capitalist perspective such as that advanced by Maturana in the opening to Chapter 3. Here, business must

E THICS

AND DOING BUSINESS IN

C HINA

consider and respond to the different and sometimes competing needs of different stakeholders because they impact on human existence. Thus, there can be no one rule for how to conduct stakeholder relationships since each stakeholder group has a different position and will have different needs. Virtuous business would adhere to the spirit of the law and go beyond legal compliance to ensure mutual benefit between business and stakeholders. In this way, they advance the progress and stability of society. The law is not definitive in outlining acceptable standards of behaviour. Rather it is one of the means of achieving a more humane or civilised society. Although the legal dimension is important, it can be overruled by contextual considerations or interpreted in different ways by critical stakeholders. Individuals are not seen as equal but as having different needs and resources, so they can be treated differently by the law. For example, Chinese authorities often think that those who are most able to pay should pay more than those who cannot afford to do so. In this way, the whole community benefits.

Doing business In China Anyone who has done business with the Chinese or traveled to China on business, as we have done consistently over the past 25 years, knows that dealing with Chinese people is different. That is not to say that it easier or more difficult than, say, doing business in Europe or on the Indian sub-continent – or in Australia or the US – but it is different because you are dealing with people of an entirely different cultural or world view. To be successful, you must suspend judgement and try to get behind the thinking. In our experience, the Chinese are hard working, resourceful, warm and extremely hospitable people. But the first thing you learn is that ‘face’ is extremely important. To give and receive face is an essential ingredient of business dealings. The notion of winners and losers, or the adversarial approach to business that characterises trade relations in the West, is foreign – even offensive – to the Chinese. Chinese courts often meet with companies multiple times to bring a matter to a satisfactory conclusion. Most disputes between corporations, including foreign companies, are resolved through informal consultation or mediation rather than litigation.

The principle of ‘face’ – An example Let us illustrate the importance of ‘face’ with a real life example. You have been sent to a Chinese province (or to one of the many countries in what has been

141

142

C HAPTER 8

described as the Nanyang network – countries like Singapore, Malaysia and the Philippines where Chinese migration significant influenced commercial history) to sell a product or service. In traditional Western parlance, you know the value of the product and you know what price you must obtain. Therefore, you would begin discussions around either achieving full value, including a minimum level of profit. You might even be prepared to offer a generous discount to clear stock or to gain entry to a new market. You will bargain from your starting position and defend this position to the hilt, prepared to walk away if you cannot achieve your ‘bottom’ price. The Chinese do not have this value system. Benevolence (Ren – see expanded explanation on page 147) is a core value, as is reciprocity.

Reciprocity – The Principle of Face In traditional Chinese culture, the merchant was lowest ranking of the four classes of people, with the scholar first, the farmer second and the worker third, the central premise of what Confucius called Ren. When a disciple asked him for a guiding principle for all conduct, he answered, ‘Is not mutual goodwill such a principle. What you do not want done to yourself, do not do to others’. (Analects XV: 13) In Christian religions, a similar principle of reciprocity exists: ‘Do unto others as you would have them do unto you.’ The difference is that, in the spirit of reciprocity, the Chinese believe that each party should begin with that as a mindset. This is the principle of ‘face’.

So, let us return to our negotiating table. You ask for an artificially high price for your product, but not one that would be an outrageous insult to your host – remembering that, in this country, they see themselves as host because community has such a high value. Business is secondary to social order and etiquette. Allow them to negotiate your price down to what both parties can accept as a satisfactory compromise. Here, you have given face and gained face; your Chinese counterpart can now accept the deal. World views are shaped by a complex web of interrelated values and social norms. The social norms of 21st Century China are evolving too, but are also deeply entrenched in values built up over centuries. Even after 2,500 years, Confucianism or Confucian ethics still has a strong influence on human behaviour. Below is a

E THICS

AND DOING BUSINESS IN

143

C HINA

brief overview of the history of Confucian thought and a précis of his teachings. Also included is a small and entirely personal selection of his verses. We can say that Confucian thinking is a layering process of values and principles with virtue (sincerity, benevolence, filial piety and propriety) as its foundation. Filial piety is a core virtue – the requirement to honour the father even after death – and especially strong in family-owned businesses that dominate the economic landscape. To illustrate how filial piety is lived out today and what this means for business, we have included a lengthy story based on our personal experience in dealing with a contemporary Chinese family business.

Case study – A Chinese family business Billy is ‘a very Western Chinese’. He spent five years running a chain of retail shops in Australia before returning to Hong Kong to help his ageing father run his manufacturing business in Southern China, one and a half hours by ferry from the bustling metropolis of Hong Kong. Billy has a small flat inside the factory, where he stays from Monday to Thursday most weeks. He also has a sales office in Hong Kong, which is the hub of his own business, run within his father’s manufacturing business. Billy travels the world, visiting the major trade fairs in London, Paris, Milan, New York and other fashion capitals. He also regularly visits the principal buyers of major retail chains in the US, England, Australia and Europe. The business produces ceramic homewares. Billy translates trends and ideas he sees into themed homeware ranges for the myriad of house and garden stores that satisfy the value of ‘instant chic’. He acts not as the manufacturer but as the buyer/specifier of quality on behalf of buyers around the world. He exhibits at the Guangzhou Fair every April and October and his stand is the most Western on show. Using an Australian designer, his products exude an aura of European sophistication in a sea of Eastern clutter. In short, Billy has succeeded in helping East meet West and has become very wealthy in the process. Because he thinks like a Westerner he can anticipate trends in the West and give the buyers what they want. Because he also understands Western standards of quality and consistency, he also acts as quality controller for Chinese factories. He uses a small number of good standard manufacturers and works closely with owners to improve their manufacturing processes. The closest he gets to manufacturing himself is Continued

144

C HAPTER 8

the small product development unit he set up in the far reaches of his father’s manufacturing facility. But there is another, very Chinese, side to Billy. He is very much his father’s son in the Chinese tradition. His father manufactures reproduction Chinese furniture for which there is a limited international market, mostly amongst older generations of emigrant Chinese. Yet the factory employs 600 people, nearly all economic migrants from villages in the north of China. All work is done by hand – no sign of mechanisation here. The closest thing to a machine is an electric drill. In room after room, young men and women squat with hand tools, sandpaper and scrubbing brushes, laboriously and intricately creating the illusion of centuries of wear and tear on pristine wooden surfaces that will eventually adorn the drawing rooms of affluent Chinese in far-flung civilisations. The artisans of Michelangelo or Rodin would be proud to observe these endeavours. Work begins at 8.30 am and finishes officially at 5.30 pm. For an additional payment, workers can do four hours ‘overtime’ from 6.30 pm to 10.30 pm. All take advantage of the offer. The extra money is very valuable to their families back home. Work is every day, with two days off each month. For Chinese New Year, they are allowed to take a month off and go back to their villages in the North to reconnect with family and friends and join in the celebrations. Billy’s father runs the factory, even though he has passed his 75th birthday. One day, he says, he will retire. Three years previously he decided to take it easy and pass control to Billy but it was in name only. Billy’s uncle, his father’s brother, is the factory manager and also lives at the factory. He is in charge on a day-to-day basis but very much under the direction of Billy’s father. Screaming instructions and rebukes at workers are heard throughout the day. Raised voices are something you get used to in China. When he first returned to China, Billy wanted to modernise the factory. He employed the services of a Western consultant to bring fresh thinking to the manufacturing process. He employed three young Chinese graduates to help him with automation of the administrative processes; they simply set up their computers next to the abacuses and manual processes in operation for decades. One factory, two systems.

E THICS

AND DOING BUSINESS IN

C HINA

Whatever changes he suggested had to pass by his father first and the answer was invariably ‘No’. The consultant, vastly experienced in manufacturing in a Western environment, sought leave to talk to the father. ‘Aren’t you afraid that the Government, which mandates that all workers should have 1 day a week off, will send inspectors to your factory?’ he asked. The father replied, ‘We will take care of the inspectors, as we always do. Anyway, that law only applies to Government factories.’ ‘What if your customers find out how you treat your workers?’ the consultant asked. ‘All private business is done this way in China,’ he replied. ‘Wouldn’t you like to treat your workers better? Wouldn’t they work harder if conditions were better? That’s certainly the experience in the West.’ ‘They’re all lazy. You spoil them and they take advantage. I don’t want to be the first. No one else I know does that. When it becomes common practice, I might follow. In the meantime, I’ll continue doing what I know works best. Besides, we treat our workers well. They get fed three times a day. We provide the opportunity for worship. We provide accommodation (six to a room 2.5 metres by 2 metres). They want for nothing and no one complains.’ Billy would love to change things but is powerless. Under the virtue of filial piety he must subjugate to his father’s will. Only with his father’s death will Billy be able to change things.

Indeed, Confucius said that the measure of a man’s filial piety is that, if three years after the death of a father the son has changed nothing of his way of life, then he has practised the virtue of filial piety.

An introduction to Confucianism ‘Confucian ethics’ are derived from the teachings of Confucius, his disciples and subsequent interpreters of his works, such as Mencius (Meng-tse), and Hsun-tzu.

145

146

C HAPTER 8

During the Han Dynasty (618–907 AD), Han Yu revived Confucianism and it subsequently became known as neo-Confucianism. Neo-Confucians believed that all humans share a fully formed virtuous nature whose existence is obscured by selfish desires. Other more recent followers and interpreters of Confucius include Chu Hsi, the Cheng brothers and Lu Wang. What we know today of Confucius’ thinking is derived from a multitude of interpretations, translations and additions to his original works. The name ‘Confucius’ comes from the Latinisation of K’ung-fu-tse by early Jesuit missionaries. K’ung-fu-tse, was born in 551 BC into a poor family in the feudal state of Lu.

The teachings of Confucius are considered to have two categories – the ‘King’ (Classics) and the ‘Shuh’ (Books). The texts of the ‘King’, were divided into five books – ▲ ▲ ▲ ▲ ▲

the the the the the

‘Shao-king’ (Book of History) ‘She-king’ (Book of Songs) ‘Y-king’ (Book of Changes) ‘Ch’un-ts’ew’ (Spring and Autumn) ‘Li-ki’ (Book of Rites)

The last of these, the Li-ki, details rules of conduct for religious acts of worship, court functions, social and family relations, and dress. For cultured Chinese, it is still considered the manual of proper conduct. Scholars believe that in the 11th Century AD, the original two volumes of the Li-ki were combined with other texts into what has become known as the ‘Sze-shuh’ (Four Books). The first of these is the ‘Lun-yu’ (Analects). The second of the four is the Book of Mencius. Mencius (Meng-tze) lived about a hundred years after Confucius but gained a reputation as a great Confucian scholar and proponent of his philosophies. His disciples collected his sayings and published them in a book under his name. The third and fourth books of the ‘Shuh’ are the ‘Great Learning’ and the ‘Doctrine of the Mean’.

E THICS

AND DOING BUSINESS IN

C HINA

Most of what the West knows of Confucius’ philosophies and principles is taken from the Analects (Lun-yu), a collection of stories and sayings bound into 21 books of verse, although academics believe that only 15 of these date from Confucius’ time. Each book of the Analects contains up to 30 verses. At the centre of his teachings is the concept of Jen (pronounced Ren). Ren is variously interpreted to mean ‘benevolence’, ‘humaneness’, or simply ‘goodness’. Another interpretation is that there are two aspects of Ren, those of loyalty and reciprocity. Yet another definition is ‘social virtue’. Confucius believed that Ren was an aspiration not an attribution; something everyone should strive to achieve; a state that one devoted one’s life to, like the three principal virtues of Christianity – chastity, honesty and faithfulness.

Four Virtues At the centre of Confucian philosophy are the four virtues of sincerity, benevolence, filial piety and propriety: ▲ Sincerity, meant to be truthful, to keep one’s promises and to be conscientious in discharging one’s duties to others. This was a reflexive virtue, insofar as Confucius believed that sincerity included the capacity to be virtuous within oneself. ▲ Benevolence, which means showing concern for the welfare of others and being prepared to help others in their hour of need. ▲ Filial piety, which means respecting the wishes of the father. This is similar to the Christian commandment ‘Honour thy father and thy mother’. However, in Chinese society. it goes much further and deeper in the psyche (see Case Study above). Filial piety is total subservience to the wishes of the father, even to the extent of living with one’s parents after marriage and, in earlier times, respecting the right of the parents to arrange the marriage. ▲ Propriety, covering all aspects of human conduct and extends to the complex system of rites and customs binding everyday Chinese behaviour. Ceremony is a prominent part of the virtue of propriety. In a Western context, this is translated as ‘doing the right thing’.

Confucius and the notion of profit ‘Lead the people with governmental measures and regulate them with laws and punishment, and they will avoid wrongdoing but will have no sense of honour and shame. Lead them with virtue and regulate them by the rules of propriety, and they will have a sense of shame and, moreover, set themselves right.’ (Analects II:3) Confucius (551 – 479 BC)

Holy Confucian Analects translated by James Legge

147

148

C HAPTER 8

Confucius ranked the four principle ‘occupations’ in descending order, with the scholar having the highest ranking, followed by the farmer, then the worker and lastly the merchant. Merchants were considered necessary for the development of society but it was not considered that they could be people of virtue. After the ascendance of Mao Zedong in 1949, and particularly after the Cultural Revolution of 1964, with the widespread adoption of Marxist thinking in the highest levels of government, scholars were relegated below farmers and workers. In ‘Confucian business ethics and the nature of business decisions’, Jonathan Chan from the University of St Thomas, Houston [Online Journal of Ethics, volume 2/4 (Spring 2000)], argues that, although at first sight Confucius was against profitmaking endeavours – and therefore there is no such thing as Confucian business ethics – provided one adheres to the principle of Ren, there is nothing wrong with gaining wealth and station for the right reasons. ‘One major criterion that Confucius uses to distinguish the gentleman (or a person of excellence) from the small man (or a mean person) is the man’s attitude towards profit. The gentleman takes trouble to be conversant with what is yi or right, whereas the small man takes trouble to discover what will pay or benefit him. If that distinction is valid, it seems reasonable to infer that one should not be versed in profit-seeking activities.’ [Jonathan Chan, para. 4] If business decisions are necessarily motivated by profit, then Confucian ethics are opposed to them. However, Chan goes on to say that businesses are rarely motivated by profit alone but the need to make profit ensures the sustainability of business. Chan calls this ‘the Compatibility View’. This is entirely consistent with the stakeholder theory of organisations. As we have highlighted elsewhere, those businesses that manage for the narrow band of their shareholders will not achieve the same growth rates in terms of expansion and return as those that manage for wider stakeholder bands. The Chinese system, whether based on the Confucian principle or the collectivist values of Marxism, emphasises the inter-relationship of humans and society, and of humans and nature. To Confucius, public order was of paramount importance. This, he argued, was more easily attainable when the community had a healthy economic base – but there was a clear sense that the economy had to benefit everyone rather than for the exclusive benefit of a ruling elite. Indeed, Confucius said that the people would prosper when the ruler set the highest example of good conduct.

E THICS

AND DOING BUSINESS IN

C HINA

‘Is there a place for Confucian ethics? ‘Confucian ethics focuses on our capacity to learn and prepare to serve our family and community. Thus, we needed to discipline ourselves for self-improvement, and to study the ethical values essential for practical living. For a long time, however, the mandarins thought only a few people could achieve this and provide social leadership. They thought that merchants were useful but only had narrow roles to play. They would have to perform ethically like everyone else, but there was no such thing as business ethics. The Confucians did not give them a respectable social position, and thus restricted their contribution to the commercial and industrial development of China. The Confucian idea of profit is important. On the one hand, rulers were advised not to seek profit. This meant that the ruler (of the government) should not engage in activities in competition with his own people. But this also suggested that profit was something immoral, something that rulers and mandarins should leave to those willing to be merchants. On the other hand, merchants were useful because they were willing to take risks to supply what the people needed. But excessive profits from cheating, manipulating the price of goods, and corrupting pubic officials, had to be stopped. The marketplace had to be governed by the same ethical principles that applied to families and communities, even if this meant restraining the activities of the merchant classes. I am not convinced that the reason lies in the totality of Confucianism as a philosophy. ‘More important are two factors. The first is the basic universalism in the core ideas of Confucius about family and the social order, not the exaggerated accretions in later commentaries, but those expressed in the Confucian Analects. The second is the way Confucianism was constructed for political ends, and then pared down and re-shaped over the centuries in the face of deadly challenges from foreign conquests or imported new ideas. This enabled its core values to be gradually adapted to deal with social change. In the context of business ethics, the universalism affirms that business should take into account the natural bonds of family and kinship and build the edifice of trust around that understanding of basic human relations. When that was understood and the family-based business structure became viable, it was easier to reconcile business with the goals of the state. Confucianism has been massively adaptable because the core of its ethical values is small and can be universally applicable. But possibly the most important underlying factor is the fact that Confucius offered a this-worldly approach to state and society and that, up till now, this attitude is the best suited to the post-Enlightenment secularism that the West has bequeathed to our globalised age.’ Wang Gungwu 2003 Reproduced with permission from: Professor Wang Gungwu, Director of East Asian Institute, National University of Singapore cum Former Vice-Chancellor of the University of Hong Kong; presented at 7th WCEC (27th -30th July 2003) Kuala Lumpur, Malaysia.

149

150

C HAPTER 8

Western perceptions of Confucian ethics In the media, journalists have a similar perception of the difference in doing business in China. Will Hutton, writing in The New Zealand Herald (26 March 2005) says that, although China may well become the world’s second biggest economy within 20 years, they still have a long way to go in adopting all aspects of the capitalist system: ‘Paying interest on bank loans, for example, is an alien concept; if the big four Chinese banks, despite enormous infusions of capital, ever had to accept the resulting loan write-offs, they would go broke. Half the shares quoted on the Shanghai stock market have never paid a dividend. Too many Chinese businessmen think that money comes free; if the attitude doesn’t change, ultimately the money tap will have to shut, bringing the growth engine to a halt.’ Nevertheless, Hutton argues: ‘Confucian capitalism will join European capitalism as another economic and social model with which to challenge the US variant.’ Since Confucianism strongly emphasises the network of obligations, duties and relationships binding an individual to family, community, state and society, it has the effect of harmonising the individual’s ethics with that of society in pursuit of social order. Kathy Chen, writing in The Wall Street Journal (13 April 2005), says that cultural change brought about by the capitalist revolution is likely to place enormous strains on the traditional values of Chinese society. She quotes statistics from China’s Ministry of Civil Affairs which show that 1.6 million couples divorced in China last year, a 21 per cent jump over the previous year, while domestic violence in Beijing is rising steeply – with 800 reported cases in 2004. Richard Spencer, in a piece for London’s The Daily Telegraph (16 March 2005), entitled ‘China rediscovers Confucius in drive for social harmony’, reports a renewal of public interest in Confucianism, long proscribed by Communist leaders of the last half-century, and claims that it is being tacitly accepted by the ruling party. ‘Confucian scholars have been particularly excited at the repetition by the Communist Party’s general secretary, Hu Jintao, of the phrase “harmonious society” at the annual session of parliament this week. In Confucian thought, “harmony” was the aim of both the individual and the state, attained by observing the principles of benevolence and reciprocity within a hierarchical society.’

E THICS

AND DOING BUSINESS IN

C HINA

Confucian ethics and corporate social responsibility A Confucian ethic seems to sit more comfortably with the notion of business accountabilities to a wider group of stakeholders beyond shareholders. It also seems to sit more comfortably with notions of virtue ethics, human character and the ethic of care emerging in Europe and other Western societies. While it can appear confronting from the American individualistic perspective and the American segregation of private and public sector spheres, it can be more easily appreciated, and appear less foreign, if viewed from a corporate social responsibility perspective. A global marketplace has emerged and we are still struggling to develop some sort of world society ethos where the growing concentration of wealth does not come at the expense of the majority of world inhabitants who have no net wealth; and where the earth’s natural resources are not being consumed by a minority at the expense of today’s majority, or the natural inheritance of future generations. Coming to a better understanding of our ethical challenges is one of the many benefits of coming to terms with what we mean by ethics in business today.

EXERCISES Models of Capitalism 1 Can you identify the differences in the current models of capitalism in: ▲ Australia ▲ Europe ▲ Scandinavia ▲ America 2 How might each model of capitalism impact on the national culture of these countries? 3 How might a concept of corporate citizenship transcend national boundaries? 4 How might the capitalist model emerge in China and what might be its impact on the world marketplace? 5 What is the recent tradition of CSR in Chinese companies and how is it changing? 6 What integrity is expected of the company as 'an economic person' in China? 7 What are the challenges of the dual framework of morality and building business ethics in China? 8 What are the best ways to build a market economy and maintain a harmonious society in China?

151

EE PP II LL O OG G UU EE

EPILOGUE Human history more and more becomes a race between education and catastrophe H.G. Wells (1866–1946) Outline of History, 1920

In this book, we have suggested that there are three distinct dimensions of ethics and that it is impossible, in the connected world of the early 21st Century, to contemplate one without recognising the influence on and by the other two. Personal ethics cannot be separated from the organisational context in which most of us are destined to spend the majority of our lives, be it working for a multinational corporation, a government department or agency, a not-forprofit organisation or simply volunteering at the local pre-school. Humans are gregarious by nature and seek out the company of other humans in communities that are increasingly focused around the workplace. Similarly, to retain their social licence to operate, organisations have to be sympathetic to the values and expectations of the wider social context in which they function.

Intergenerational equity We would suggest, in fact, that there is a fourth dimension – a parallel world, if you like, which sits alongside our present world - and that is the future world. Eminent mythologist Joseph Campbell suggests in The Power of Myth (Doubleday, 1988) that, when we humans have children, we ourselves begin to die. In saying that, he is suggesting that the introspective, inner world that we

152

E PILOGUE

inhabit as solo human beings changes forever when we have children and our focus turns towards them. Their life begins where ours has now left off. Suddenly we are faced with the awful thought that we will be succeeded by this person we have created. We are less important in the wider scheme of things than our heir and successor and she/he will outlive us. The fourth dimension, therefore, belongs to tomorrow’s generations and demands our ethical accountability: to those who cannot speak for themselves, for what we bequeath to them; and to what is left of nature’s world and the vitality of the economic, social and spiritual realms they will inherit. Surely we have a duty, an ethical responsibility, to patrol the boundaries of the society for whom we are custodians – for our children and our children’s children.

Après moi, le deluge (F) After me come the floods, is attributed to Louis XV. When he died in 1715, Louis XIV had built France into the dominant power in Europe, but he bankrupted the nation, forcing him to levy high taxes on the peasantry while the nobility paid none at all. Most people lived in poverty while the King built an empire. During the empire’s demise his great grandson Louis XV ruled France and its possessions, which included the colonial city of New Orleans. He lived for indulgence and luxury as his people descended further into despair. It is said, near his end, that he uttered the words 'Après moi le deluge'. Centuries later, from 23–31 August 2005, the people of New Orleans met those floods, as contemporary rulers – political and economic – abandoned them to their fate. The words 'Après moi le deluge' have come to epitomise the psychology of those who ruin people and the earth with no thought for tomorrow. (see: Paul Jay, Essay on Hurricane Katrina - www.iwtnews.com/)

Sustainable development IBM became the most powerful corporation in the world as a result of its philosophy of ‘passing the baton’ from leader to leader. Its philosophy was that the current leader was simply the custodian of the corporate culture and it was his (they were all men in those days) responsibility to protect this precious flower for the next generation. IBM endured for over a century of change as a result of that philosophy and the culture remained intact for several decades. Companies ‘built to last’ today share a similar philosophy.

153

154

E PILOGUE

This responsibility to future generations is often referred to as the notion of ‘intergenerational equity’. In the context of sustainability, it is used to describe the responsibility of present generations to safeguard the interests of future generations. The World Business Council for Sustainable Development defines sustainability as ‘forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs’. In ‘Corporate citizenship and corporate social investment’, Alyson Warhurst and her colleagues at the UK’s Warwick Business School [Journal of Corporate Citizenship 1 (2001) 57–73] define sustainable development in the following terms; it can be seen that each rests on recognition and honouring of the relationship and inter-relationship context: ▲ Connectivity embraces ecological, social and economic interdependence; ▲ Equity suggests fairness, within and across generations and species; ▲ Prudence connotes duties of care and prevention, technologically,

scientifically and politically; ▲ Security demands safety from chronic threats and protection from harmful disruption. So, if we accept these definitions of sustainability, and the notion that individual gain must be tempered with consideration of community prosperity then we cannot fail to see that we are custodians of the ethical personality of civilised society. By ignoring such interdependencies, we have passed a challenging baton onto Generation Y – who will have to remediate the excesses of their forefathers. So then what price Generation Y, the heirs of our future? Conservative predictions put the life expectancy of most of the world’s natural resources at 70 years. The UN claims that oil supplies will peak in 2008. There have been no new significant oil finds in the last 20 years. Electricity, dependent as it is in most developed communities on coal, will probably last for one to two generations longer. In ‘Basic choices and constraints on long-term energy supply’, Paul B. Weisz, Emeritus Professor of Chemical and Bioengineering at the University of Pennsylvania (Physics Today, February 2005), estimates that most fossil fuels will be used up within one lifetime; he emphasises the paramount importance of an appropriate public policy response to address the looming crisis.

E PILOGUE

What all this means is that the present generation of young people will very likely see the extinction of natural resources that we currently take for granted. At present rates of consumption, their children will not have access to natural resources we took for granted. Along with disappearing energy resources, we have also eliminated plant and animal kingdoms and, some would argue, dwindled our social capital – by spawning a society where a small percentage of the world’s population enjoys individual wealth by pursuing unlimited growth at the expense of the majority – through inequity and unfairness.

Intergenerational ethics So, out of the notion of ‘intergenerational equity’ can be derived the notion of ‘intergenerational ethics’. What responsibility do current generations of workers and employees owe to younger employees – such as Generation Y – and their future? Surely we have evolved beyond the ‘greed is good’ business culture of the 1980s. In the 21st Century people exhibit business behaviours, values and attitudes that treat the earth’s valuable resources as more than ‘free goods’ for unbridled consumption. We have become aware of our responsibilities in the global connections between the environment and natural resources, culture, health and social equity, and business and consumer behaviour. We are part of an interconnected, interdependent world with mutual responsibilities and accountabilities for our behaviour and our survival. We know that we have left the planet’s resources depleted and its environment in a critical state – far beyond help from new technologies for future generations. The corporate sustainability movement developed in response to this. In ‘Corporate Sustainability’ (eContent, 2004) Dexter Dunphy argues that ‘there is no technological “fix”.. The task is not only to redesign our tools but also ourselves’ (Conclusion: 362). In the same book, Joseph Petrick (p.165) argues for global managerial ‘moral complexity’ skills development, while Mark Starik (p.167) proposes that governance occurs at multiple levels through multiple connecting systems – with individuals, organisations and society each responsible for sustainability governance through their respective actions. Ray Anderson, Interface’s CEO [The Corporation (Movie), 2005] talks about ‘intergenerational tyranny’, to describe the fact that every facet of the biosphere is in decline as a consequence of the actions of those living in the 20th Century. Most of the blame is attributed home to those leading our public, global corporations. By destroying many aspects of the natural environment, we are denying our children’s children’s children the right to inherit a healthy planet Earth and as a result, a healthy economy, healthy social life and healthy ‘self’.

155

156

E PILOGUE

We singled out Generation Y (born 1978–1994) for two reasons: ▲

according to today’s researchers, they are the first generation to survive the education system with their self-esteem relatively intact and are genuinely concerned about social equity and environmental protection; and ▲ they are perhaps the first generation of employees to have an expectation that they can be the same person at work as they are outside the workplace. Baby boomers growing up in the 1950s and reaching adulthood in the mid1960s championed basic freedoms, hard won in the civil rights movements They subscribed to value-sets around hard work, conscientiousness, deferred gratification, loyalty and reward-follows-good endeavour. Now Generation Y believes in instant gratification, loyalty to self, work/life balance, equality as a right rather an earned privilege, and a two-year time horizon of continuous employment. Between these two generations is Generation X (born 1962–1977), raised between the first oil crisis of 1973 and the stock market crash of 1987 into a society that could no longer guarantee employment: a society that created the phenomenon of workforce ‘casualisation’ and ’multi-skilling’; an era where employability became more important than employment; and where the so-called ‘40/40’ syndrome of past generations (40 hours a week for 40 years, followed by 2-10 years of retirement before death) was laid to rest. The priority values of each of these groups shape their world view. The resulting generational and cultural diversity makes managing a complex organism like an organisation both a social and an economic challenge (see: Generation Y: Thriving and Surviving with Generation Y at work, by Peter Sheahan, Hardie Grant Books, 2005). New concepts, such as ‘emotional intelligence’, responsible corporate citizenship, learning organisations, mentoring, partnering, networking and ethical relating are reflections of the changing nature of leadership, management and work experiences in a 21st Century context. The choice of priority values is what makes each generation, and each individual, unique. As we have seen in Chapter 3, Maturana’s definition of ethics [H.R. Maturana and F.J. Varela (1992) The Tree of Knowledge: The Biological Roots of Human Understanding, Shambhala, Boston] places heavy emphasis on the sanctity of relationship and interrelationships within each generation; of the need to respect the values and needs of others; of the imperative for self-knowledge as the vital precursor to human co-existence and ethical progress. To use the old cliché, Ethics is not an end, it’s a journey.

157

E PILOGUE

The journey began with ancient philosophers, Eastern and Western, seeking to understand the meaning of life and to provide frameworks for educated humans not only to make sense of their own worlds but also to guide others towards a meaningful existence. As many Western countries loosened the shackles of fundamentalist Christianity and as the power of the corporation expanded on a global scale, a need for a more universal understanding of ethics in a secular or pluralist context has emerged. Today, questions of ethics focus on relationship accountability, equity and fairness and the importance of a sound character – individually and collectively, as represented by organisational life – to balance self interest with social prosperity. In our experience working in the field of business ethics within Australia’s largest corporations and public sector organisations, employees want to hear more about this ‘heart stuff’. They are much more engaged with relevant and timely conversations about ethics in contemporary times than they are in academic or legal prescriptions about how they should behave. Ethical challenges are continual, various and manifold. Each of us, in each sphere of our daily life, faces a myriad of situations that will test our character’s ethical fitness. Every situation carries within it the opportunity to hone our powers of ethical discretion. As Paul Tillich expressed it so beautifully (Paul Tillich: An Appraisal by J. Heywood Thomas, Westminster, 1963): ‘Ethics is not a subject, it’s a life put to the test in a thousand different moments.’ Ethics can be learned, just as we learn other behaviours. The challenge for each of us is to look inside ourselves and make such learning intrinsically rewarding. There will always be ‘free riders’, those who exploit the ‘goodness’ as well as the ‘weakness’ of others, but in the end, they are also the losers – because their worldview is an impoverished one, where self is pitted against the world rather than living in harmony with it.

Case study – Kingdom of Conscience We have popular culture on our side and the technology to promote a globally shared conversation. The eminent British film director Ridley Scott recently made a film called ‘Kingdom of Heaven’ in which the main character, Balian, a humble blacksmith who becomes a baron and a fearsome knight, is asked by the ailing King to become head of his armies. He is also invited to marry the King’s sister, the Princess, and to carry on the dynasty for good. The snag is that the Princess is already married to an evil French noble intent Continued

158

E PILOGUE

on provoking war with the Muslims. The plan is that the Princess’s husband will be executed as a traitor, along with several of his loyal knights, in order to free the Princess to marry Balian. Balian refuses, saying, ‘It is either a Kingdom of Conscience or nothing at all.’ The King’s consort and adviser berates him for seeking to be ‘the perfect knight’ and the Princess, in her despair, asks, ‘Can’t you be a little bit evil in order that many people can prosper?’ What is interesting is that, not only does Balian refuse, but that this message is being sent out to the audience, mostly Generation Y. It echoes a similar theme captured in the Russell Crowe epic ‘Gladiator’ when ‘truth and honour’ served as the ‘high five’ between centurions. For us, it points to a pattern of signals that are out there in today’s world indicating a new spiritual dimension that is trying to break forth; it is a pattern that connects us to each other during our short life on this planet and sings up a modern imperative to accentuate the noble dimension of daily life.

There is no doubt that ethics will become the defining quality of 21st Century life. Our children’s children – and their children – depend on the choices we make today. Let’s willingly draw back from the precipice of a worldview that lauds the absurdity ‘You can have it all.’ Let’s recognise that there’s more than ‘me’ on the planet. We can move to the high ground, hone a personal character that rises willingly and capably to the challenge of being fully human, and take the needs of our fellow travellers into consideration. It is your decision. The virtues of ‘truth’ and ‘honour’ can take us as far as we need to go.

EXERCISES Reflection and action 1 2 3 4

How will you promote a culture of corporate social responsibility in your organisation which aligns with your personal values and actions? What will you do at home and at work to sustain resources, create healthy psychological contexts and sustainable values for future generations? Which organisations do you respect or disrespect for their activities or crimes in social justice and environmental protection? After reading this book, which organisations would you join, or not join, to ensure that your values are respected at work and in society?

AA PP PP EE N ND D II XX 11

THE GLOBAL 100 LIST OF THE MOST SUSTAINABLE CORPORATIONS IN THE WORLD www.global100.org (Corporate Knights Inc. Toronto ON, 2005) The following list of The Most Sustainable Corporations in the World (Global 100 List for 2005 www.global100.org) is reproduced with permission from Corporate Knights Inc. Surprising entries are included. Who is missing from the list? Which companies should not be included and why? How is the term ‘Sustainable’ used here? Australia Alumina Limited Metals & Mining

Nokia Oyg Communications Equipment Kesko Food & Drug Retailing

Belgium Dexia Banks - Europe

France Lafarge SA Construction Materials Danone Food Products ST Microelectronics Semiconductor Equipment & Products Arcelor Steel

Canada Royal Bank of Canada Banks - North America TransAlta Utilities Electric Utilities - International Enbridge Inc. Gas Utilities Manulife Financial Corp Insurance - North America Sun Life Financial Services Insurance - North America Alcan Inc. Metals & Mining Denmark Vestas Wind Systems A/S Electrical Equipment Novo Nordisk Pharmaceuticals Finland Nokian Renkaat Auto Components

159

Germany Volkswagen Group Automobiles Hypovereinsbank Banks - Europe Fresenius Medical Care AG Health Care Providers & Services Henkel Household & Personal Products Siemens AG Industrial Conglomerates Heidelberger Druckmaschinen Industrial Machinery SAP AG Software Deutsche Telekom Telecommunications Adidas Salomon AG Textiles & Apparel

160

A PPENDIX 1

Great Britain British Airways Plc Airlines HBOS Plc Banks - UK & Ireland Diageo Beverages & Tobacco Sabmiller Beverages & Tobacco Pilkington Plc Building Products Hays Plc Commercial Services & Supplies David S. Smith Holdings Plc Containers & Packaging 3I Group Plc Diversified Financials - UK Scottish And Southern Energy Plc Electric Utilities - International Expro International Group Energy Equipment & Services J Sainsbury Plc Food & Drug Retailing Cadbury Schweppes Food Products Unilever Food Products Centrica Plc Gas Utilities Smith Nephew Health Care Equipment & Supplies Taylor Woodrow Plc Homebuilding Whitbread Plc Hotels Restaurants & Leisure Aviva Insurance - UK & Ireland BP Plc Integrated Oil & Gas GUS Plc Multiline Retail Marks & Spencer Plc Multiline Retail Cairn Energy Plc Oil & Gas Exploration & Production GlaxoSmithKline Plc Pharmaceuticals Severn Trent Plc Public Services Pearson Plc Publishing British Land Co Plc Real Estate Land Securities Plc Real Estate Slough Estates Plc Real Estate Kingfisher Plc Specialty Retail BAA Plc Surface Transport Peninsular & Oriental Steam Navigation Surface Transport BT Group Plc Telecommunications Japan Denso Auto Components Toyota Motor Automobiles Kuraray Company Ltd Commodity Chemicals Ricoh Company Ltd Electronic Equipment & Instruments NTT Docomo Inc Telecommunications Netherlands ABN Amro Holding Banks - Europe ING Group Diversified Financials - Europe

Philips Electrical Household Durables Royal Dutch Petroleum Integrated Oil & Gas Reed Elsevier Plc Publishing Norway Tomra Systems Asa Industrial Machinery Spain Gamesa Corporacion Tecnologica SA Industrial Machinery Indra Sistemas IT Consulting & Services Sweden FoereningsSparbanken AB Banks - Europe Ericsson Communications Equipment Skanska Construction & Engineering Volvo Construction & Farm Machinery Electrolux AB Household Durables Svenska Cellulosa AB Paper & Forest Products Hennes & Mauritz Specialty Retail Switzerland ABB AG Electrical Equipment Swiss Reinsurance Company Insurance - Europe United States United Technologies Corp Aerospace & Defense United Parcel Service Inc Air Freight & Couriers Bank of America Banks - North America Pepsico Inc Beverages & Tobacco Pitney Bowes Commercial Services & Supplies Hewlett-Packard Company Computers & Peripherals FPL Group Inc Electric Power Companies North America Pinnacle West Cap Corp Electric Power Companies - North America Agilent Electronic Equipment & Instruments Xerox Corp Electronic Equipment & Instruments Schlumberger Ltd Energy Equipment & Services Baxter Health Care Equipment & Supplies Marriott Intl Inc New Hotels Restaurants & Leisure Eastman Kodak Co. Leisure Equipment & Products Alcoa Inc Metals & Mining Weyerhaeuser Co. Paper & Forest Products Bristol-Myers Squibb Co. Pharmaceuticals Intel Corp Semiconductor Equipment & Products Ecolab Inc Specialty Chemicals AT&T Corporation Telecommunications

AA PP PP EE N ND D II XX 22

TOP 120 AUSTRALIAN AND NEW ZEALAND COMPANIES – CORPORATE SOCIAL RESPONSIBILITY INDEX www.reputex.com.au (RepuTex®, Melbourne VIC, 2005)

The biggest 100 Australian companies and 20 New Zealand companies from Business Review Weekly's top 1000 companies have been ranked below in order of their corporate social responsibility index from AAA (outstanding) down to C+ (very low) by RepuTex® (7 December 2005; reproduced with permission - Philip Cohn www.reputex.com.au). How is the term ‘Social Responsibility’ used here? Some surprising ratings are included in the list. Who has performed better/worse than expected? Which companies are exposed to the highest level of stakeholder scrutiny? What impact did this have on their ranking?

AAA Westpac Banking Corporation Banks AA ANZ Banking Group Ltd Banks Australian Postal Corporation Transportation BHP Billiton Ltd Materials Energex Ltd Utilities Ergon Energy Corporation Ltd Utilities

Hewlett Packard Technology & Hardware IBM Australia Ltd Technology & Hardware Insurance Australia Group Ltd Insurance National Australia Bank Ltd Banks Queensland Rail Transportation Visy Industries Ltd Materials

161

162

A PPENDIX 2

AA– BP Australia Ltd Energy Nestle Australia Ltd Food, Beverage & Tobacco Origin Energy Ltd Energy Telecom Corporation of New Zealand Ltd Telecommunication Services (NZ) The Warehouse Group Retailing (NZ) ToyotaMotor Ltd Automobile & Components A+ ACC NZ Insurance (NZ) Alcoa of Australia Ltd Materials Amcor Limited Materials Australian Gas Light Company Utilities Brambles Industries Ltd Commercial Services & Supplies Coca-Cola Amatil Ltd Food, Beverage & Tobacco Coles Myer Ltd Food & Staples Retailing Ford Motor Ltd Automobile & Components Lion Nathan Ltd Food, Beverage & Tobacco Medibank Private Ltd Insurance Newmont Australia Ltd Materials Rio Tinto Ltd Materials Sydney Water Utilities Vodafone Australia Telecommunications A AMP Ltd Insurance Australia Meat Holdings Pty Ltd Food, Beverage & Tobacco Bluescope Steel Limited Materials Boral Limited Materials Cadbury Schweppes Australia Ltd Food, Beverage & Tobacco Coal & Allied Industries Ltd Materials CSL Ltd Pharmaceuticals & Biotechnology CSR Ltd Materials Daimler Chrysler Pty Ltd Automobile & Components

Energy Australia Ltd Utilities Foster’s Group Ltd Food, Beverage & Tobacco Holden Ltd Automobile & Components ING Pty Ltd Diversified Financials Leighton Holdings Ltd Capital Goods Lend Lease Corporation Ltd Real Estate New Zealand Post Ltd Transportation (NZ) Onesteel Ltd Materials Promina Group Ltd Insurance Qantas Airways Ltd Transportation Santos Ltd Energy Shell Australia Ltd Energy Smorgon Steel Group Ltd Materials Tabcorp Holdings Ltd Consumer Services Telstra Corporation Ltd Telecommunications TRU Energy Utilities Wesfarmers Capital Goods Woodside Petroleum Ltd Energy Woolworths Ltd Food & Staples Retailing Xstrata Queensland Ltd Materials A– Fletcher Building Ltd Materials (NZ) Genesis Power Ltd Utilities (NZ) Meridian Energy Ltd Utilities (NZ) SingTel Optus Pty Ltd Telecommunications Western Power Corporation Utilities B+ Air New Zealand Ltd Transportation (NZ) AWB Ltd Food & Staples Retailing Commonwealth Bank of Australia Ltd Banks Exxon-Mobil Pty Ltd Energy Mitsui & Co Ltd Capital Goods Multiplex Group Real Estate Nufarm Ltd Materials

TOP 120 AUSTRALIAN AND NEW ZEALAND COMPANIES – CORPORATE SOCIAL RESPONSIBILITY INDEX

Orica Ltd Materials St George Bank Ltd Banks Zurich Financial Services Ltd Insurance B AXA Asia Pacific Holdings Ltd Insurance Caltex Australia Ltd Energy Fisher and Paykel Appliances Holdings Ltd Consumer Durables & Apparel (NZ) GE Capital Finance Diversified Financials John Fairfax Holdings Ltd Media Macquarie Bank Ltd Diversified Financials Mazda Australia Pty Ltd Automobile & Components Mighty River Ltd Utilities (NZ) Nissan Motor Co Pty Ltd Automobile & Components Paperlinx Ltd Materials Rail Corporation of NSW Transportation Rinker Group Ltd Materials Sigma Company Ltd Health Care, Equipment & Services Sims Group Ltd Materials SkyCity Entertainment Group Ltd Consumer Services (NZ) Suncorp Metway Ltd Diversified Financials Tenon Ltd Materials (NZ) Vector Ltd Capital Goods (NZ) B– Allianz Australia Ltd Insurance Bank of Western Australia Banks Contact Energy Ltd Utilities Crane Group Ltd Capital Goods David Jones Ltd Retailing Downer EDI Ltd Commercial Services & Supplies Fonterra Co-operative Group Ltd

Food, Beverage & Tobacco (NZ) George Westorn Foods Ltd Food, Beverage & Tobacco Mitsubishi Motors Ltd Automobile & Components QBE Insurance Group Ltd Insurance Tattersall’s Ltd Consumer Services Toll Holdings Transportation Trust Power Ltd Utilities Village Roadshow Media C+ Alliance Group Ltd Food, Beverage & Tobacco (NZ) Australian Pharmaceutical Industries Ltd Health Care, Equipment & Services Burns Philp & Co. Ltd Food, Beverage & Tobacco Futuris Corporation Ltd Food, Beverage & Tobacco Metcash Trading Ltd Food & Staples Retailing News Corporation Ltd Media Nuplex Industries Ltd Materials (NZ) Publishing & Broadcasting Ltd Media Spotless Group Ltd Commercial Services & Supplies Tower Ltd Insurance (NZ) I/A AFFCO Holdings Ltd Food, Beverage & Tobacco (NZ) Hagemeyer Asia Pacific Electronics Pty Ltd Capital Goods Harvey Norman Holdings Ltd Retailing Mainfreight Ltd Transportation (NZ) Masterfoods Australia / New Zealand (Mars Incorporated) Food, Beverage & Tobacco Murray Goulburn Cooperative Co Ltd Food, Beverage & Tobacco Queensland Sugar Ltd Food, Beverage & Tobacco Wrightson Ltd Capital Goods (NZ)

163

AA PP PP EE N ND D II XX 33

UNIVERSAL

DECLARATION OF

HUMAN RIGHTS Preamble Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world, Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people, Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law, Whereas it is essential to promote the development of friendly relations between nations, Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom,

164

U NIVERSAL

DECLARATION OF HUMAN RIGHTS

Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms, Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge, Now, therefore,

The General Assembly Proclaims this Universal Declaration of Human Rights as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction. Article 1 All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood. Article 2 Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty. Article 3 Everyone has the right to life, liberty and the security of person. Article 4 No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms. Article 5 No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.

165

166

A PPENDIX 3

Article 6 Everyone has the right to recognition everywhere as a person before the law. Article 7 All are equal before the law and are entitled without any discrimination to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination. Article 8 Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law. Article 9 No one shall be subjected to arbitrary arrest, detention or exile. Article 10 Everyone is entitled in full equality to a fair, and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him. Article 11 Everyone charged with a penal offence has the right to be presumed innocent until proven guilty according to law in a public trial at which he has had all the guarantees necessary for his defence. No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence, under national or international law, at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal offence was committed. Article 12 No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks. Article 13 Everyone has the right to freedom of movement and residence within the borders of each State. Everyone has the right to leave any country, including his own, and to return to his country. Article 14 Everyone has the right to seek and to enjoy in other countries asylum from persecution.

U NIVERSAL

DECLARATION OF HUMAN RIGHTS

This right may not be invoked in the case of prosecutions genuinely arising from non-political crimes or from acts contrary to the purposes and principles of the United Nations. Article 15 Everyone has the right to a nationality. No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality. Article 16 Men and women of full age, without any limitation due to race, nationality or religion, have the right to marry and to found a family. They are entitled to equal rights as to marriage, during marriage and at its dissolution. Marriage shall be entered into only with the free and full consent of the intending spouses. The family is the natural and fundamental group unit of society and is entitled to protection by society and the State. Article 17 Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property. Article 18 Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance. Article 19 Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers. Article 20 Everyone has the right to freedom of peaceful assembly and association. No one may be compelled to belong to an association. Article 21 Everyone has the right to take part in the government of his country, directly or through freely chosen representatives. Everyone has the right of equal access to public service in his country.

167

168

A PPENDIX 3

The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures. Article 22 Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality. Article 23 Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. Everyone, without any discrimination, has the right to equal pay for equal work. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. Everyone has the right to form and to join trade unions for the protection of his interests. Article 24 Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay. Article 25 Everyone has the right to a standard of living adequate for the health and wellbeing of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection. Article 26 Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

U NIVERSAL

DECLARATION OF HUMAN RIGHTS

Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace. Parents have a prior right to choose the kind of education that shall be given to their children. Article 27 Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits. Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author. Article 28 Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized. Article 29 Everyone has duties to the community in which alone the free and full development of his personality is possible. In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society. These rights and freedoms may in no case be exercised contrary to the purposes and principles of the United Nations. Article 30 Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.

169

USEFUL USEFUL WEBSITES WEBSITES

Corporate Social Responsibility Networks AccountAblity www.accountability.org.au Best Practices Database www.bestpractices.org Business for Social Responsibility www.bsr.org/ Caux Roundtable www.cauxroundtable.org/ Centre for Tomorrows Company www.tomorrowscompany. com/index.html Council for Economic Priorities (CEP)