Business Ethics Lecture Notes

Class # 2 - Business Ethics Lecture Notes: Note: Bring a sample of a code of conduct and a code of ethics from a business or organization to class. Note: Class will consist of lecture and discussion. 1. The Foundations of Ethical Conflict What is an ethical issue in the workplace? What are the sources, antecedent conditions which are present in organizations which may lead to ethical dilemmas. How does the organization influence individuals through its structural components, e.g. formalization, centralization, grouping strategy and culture. 2. Ethical Decision Making Frameworks Applying moral philosophies as ethical filters in management decision making and problem solving. 3. The Impact of Organizational Relationships on Ethical Decisions What impact does the work group have on the individual? Can people control their own ethical actions within the organization? 4. The Influence of Significant Others Who are the significant others in the workplace. How do they influence individual decision making. 5. Institutionalizing Ethics in the Organization How can organizations develop ethical cultures. What factors must be taken into account when designing meaningful codes of ethics/conduct? 6. Assessing Organizational Performance How do organizations assess their "ethicalness"? An examination of the approaches available to evaluate organizational performance including social audits and responsibility statements. 7. Managing Unethical Behavior What do managers do when confronted with employees or superiors who behavior inappropriately. A particular focus will be illegal behavior related to employment practices such as staff selection and relationship issues such as personal relationships between workers , sexual harassment and EEO.

Additional websites for further information on the topic: http://www.stuart.iit.edu/ethics/sites.html www.iit.edu/departments/csep/PublicWWW/codes http://www.business-ethics.com/ http://ethics.acusd.edu/index.html www.eoa.org http://www.utm.edu/research/iep/

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Additional Reading: (required) Supervision, Oct 1999 v60 i10 p5(2)

Making an honest buck: how to develop an ethical team. Clifford Miller. Abstract: The US has developed its own unique notion of free enterprise that demands honesty and ethical behavior in both buyer and seller. Thus its is the responsibility of US executives not only to manage the physical output of their followers but also to promote morality and ethical behavior within their organizations. Five suggested principles ought to help managers develop and enhance ethical performance in their work areas and thus help instill a set of appropriate behaviors by which US employees desire to work. Full Text: COPYRIGHT 1999 National Research Bureau The Greek expression, caveat emptor, epitomizes a philosophy of business. Literally meaning "Let the buyer beware," it appears to condone a marketplace of misrepresentations and shoddy products. Less well known is its sister expression, caveat venditor, which suggests sellers require equal caution in commercial transactions. Both of these phrases are sometimes considered the logical consequence of a third foreign phrase, laissez faire, which connotes a market where all parties are left alone for better or worse. America has developed its own unique phrase that suggests a different cultural view of acceptable business practice. Unlike the economic systems that are described above, "making an honest buck" has evolved as our guiding principle. While we still emphasize productivity (that is, making products, services and bucks), we have added an all important ethical criteria which we sum up in the word, honesty. Ethics is a dimension Americans require in our business environment. It is demanded by stockholders, customers and society as a whole. As supervisors and managers, it becomes our responsibility to promote morality within our organizations. This role of leadership is often overlooked, but providing ethical guidance to a team is just as important as managing its physical output. What is Ethics? One reason managers have shied away from this moral role relates to the difficulty of defining a common set of ethical principles. People derive their values from their own personal experiences, philosophies or a variety of religions, and this has resulted in honest disagreements since the time of Aristotle and Plato. The chance all members of a work team will have a common perception of ethical behavior is remote. At the outset then, a manager must realize she cannot put forth an all encompassing, logical set of ethics. Instead, managers must try to grasp and promote two things: the first are the rules of society, normally referred to as its laws; the second includes our society's general understandings of what is good or appropriate behavior, and this is what we mean by ethics. While rules or laws are normally codified in a written format, the ethics of acceptable behavior is often no more than informal understandings within a company, locale, society or humanity itself. For example, a group may agree it is inappropriate to ignore customer complaints. Even if there are no written guarantees, this chosen behavior becomes an overriding ethical principle for that particular group. It is their understanding of a good business practice. There is another element often encountered in any discussion of ethics. Most of the time, ethics concerns an individual's obligation to something beyond himself. This can include obligations of how to treat customers, members of the organization, a community or society. Such an obligation can take a variety of forms. It may mean work ethics by which we contribute at an optimum level to our team, environmental ethics by which we choose not to pollute or make dangerous products

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or marketing ethics by which we place our customer's interests above our own. In other words, ethics is the unwritten understandings of our appropriate behavior to people beyond ourselves. How can an individual manager or supervisor promote such behavior? While approaches may vary, there are at least five principles you will find helpful. 1. Rely on a written ethics policy. Hopefully, your company already has such a policy which can be shared and discussed with your staff. If not, your department should be encouraged to create one of its own. By meeting with your team, discussing your shared values and principles and summarizing them in a written format, your group will become aware of the acceptable behaviors by which you all want to live. Unless these are identified in open forums, individuals will often assume their firm is only concerned with profitability at all costs. The supervisor's responsibility, then, is to develop an awareness of ethical criteria in a business environment. 2. Set an example. Many employees have become cynical about company policies, and this is sometimes justified when outdated rules and procedures do not truly reflect the way work is done. The supervisor's responsibility is to go beyond these written words, demonstrating an ethical approach to work at all times. If he produces a faulty product, falsities an operating report or simply looks the other way when such behavior occurs, the members of his team will notice and assume that the ethics policy is simply lip service. Supervisors, therefore, must be ethical icons in their areas of responsibility. 3. Instruct with case studies. It will not be enough to merely state policies and then live them. Many employees need to learn about ethics in a more concrete manner, and this can be taught effectively by examining fictitious scenarios. For instance, one could describe a healthy employee who abuses sick pay, assuming he is entitled to use all of this sick time. Have your staff discuss this issue, developing an ethical concept regarding such behavior. Their answers might involve both the individual's contract with the organization and his responsibility to other team members who will need to absorb his work. Periodic meetings discussing such situations will reinforce the belief your firm takes ethics seriously. 4. Reward ethical performance. In the same way you would take note of high productivity, you should be prepared to recognize exemplary ethical standards. If you discover an employee recalled an inferior product or refunded a customer's overpayment, the behavior should be positively reinforced. Whether this is done in the form of public recognition or by providing a more tangible reward, the result will be to encourage others to behave in a similar fashion. The corollary, of course, is unethical performance should not be tolerated. When you discover dishonesty or any action violating your department's concept of ethics, you should not shy away from appropriate punishment. This type of discipline can be unpleasant, but it is necessary if you wish to supervise a consistently ethical environment. 5. Encourage social responsibility. While the above mentioned rewards and punishments are reactive in nature, one must try to create proactive, positive programs which express your department's values. This can include such activities as supporting a community youth group, raising funds for a charity, or championing an environmental issue. Regardless of the specific activity, ethics can involve reaching out to the groups that are beyond oneself. By using these five supervisory principles, you will develop and enhance the ethical performance of your work area. This will help to instill a set of acceptable behaviors by which Americans want to work, and your department will be proud to perform in a manner that "earns an honest buck." Mr. Miller has a Master of Arts in Business Management from Central Michigan University. Having served in a variety of business roles, he now teaches management courses in Columbus, OH.

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Journal of Business Strategy, July-August 1995 v16 n4 p16(4)

Mary Kay's foundation. (Mary Kay Corp.)(Ethics) Richard C. Bartlett. Abstract: Mary Kay Corp. is founded on the Golden Rule 'do unto others as you would have others do unto you.' In keeping with this rule, it makes ethical decisions that are not always easy and can even have adverse financial consequences. One example is Mary Kay Cosmetics Inc.'s decision to stop animal testing and to develop new testing technology. The decision entailed lost sales and additional investment in R&D, but the company chose to focus on goodwill and on the loyalty and trust of its stakeholders. Practicing ethical corporate conduct can be very difficult, but there are some guiding principles that business leaders can adopt to ensure ethical behavior. These include addressing problems immediately, discouraging unethical behavior in the organization, avoiding disparaging the competition, and adopting a code of ethics. Full Text: COPYRIGHT 1995 Faulkner & Gray, Inc. I think of ethics in two parts - virtue ethics and obligation ethics. Virtue ethics is a group of enduring, universal values like honesty, caring, respect, loyalty, and fairness. Those come from within us. Obligation ethics consist of the rules of ethical behavior, laws and canons that we humans have devised over the centuries. Rules and laws come from without, and are applied to us from outside ourselves. Leaders deal with virtue ethics, managers with obligation ethics. The leader develops fresh approaches to problems. The manager makes decisions. Leaders open up issues. Managers manage conflict. Leaders open project ideas into exciting images and then develop choices that give the projected images substance. Managers negotiate, bargain, compromise, and balance. All too often, their choices are limited. In relationships, leaders tend to be intuitive, empathic, and intense. Managers like working with others, but tend to prefer low emotional involvement. Leaders are concerned with what events and decisions mean to people. A real leader is a servant. She or he serves employees by creating an environment in which they can do their best and in which they aren't afraid to be vulnerable and to fail - to fail forward to success, as Mary, Kay puts it. Mary Kay Ash founded our company on the Golden Rule - Do unto others as you would have others do unto you. This is obligation ethics. To apply the golden rule, to make it powerful in you life, you must develop a sense of empathy for other people. Empathy is an essential ingredient of virtue ethics as well as an important attribute of leadership. Ethical leaders can create an ethical corporate culture that brings out the best in people. Ethical behavior takes on a life of its own and grows, if given a change. Ethics is Good Business But an ethical company doesn't exist in a vacuum. To make ethical decisions, we must consider the impact on the larger society of which we are a part. In the case of Mary Kay Cosmetics, this larger society includes independent entrepreneurs - our beauty consultants, our employees, the communities in which we are located, and business partners such as suppliers, scientists, medical professionals, the cosmetics industry, the pharmaceutical industry, and the direct-selling industry. All of these factored into a decision we made in May 1989. We announced a moratorium on animal testing while we developed and evaluated new testing technology. Mary Kay Cosmetics was the one of the first companies to take such a step. Our goal was to take the high ground. The decision meant putting a hold on new products for a while, which meant lost sales. It also meant additional investment in evaluating alternatives.

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As our moratorium decision illustrates, ethical decision-making, by its very nature, is relative what will be the effect of our decision on others? Is the decision right, not only for us, but also for society? Such questions must be considered. Ethical corporate conduct is not easy and can be costly, but I believe ethics is good business. And I believe that ethical conduct can be measured. The CPAs have given us ways to measure goodwill for the balance sheet. But loyalty and trust of employees, shareholders, and business partners are important measures, too. Loyalty and trust are probably the greatest assets a company can have especially a company such as ours where our independent entrepreneurs are not tied to us through a paycheck. Loyalty and trust are built on a base of everyday ethical conduct. The ethics of people management has to be based on the fact that the truth is the only way we can trust each other. According to the Business Roundtable, a leading group of chief executives, "One of the myths about business is that there is a contradiction between ethics and profits." In practice, says the Roundtable, "there is a deep conviction that a good reputation for fair and honest business is a prime corporate asset that all employees should nurture with the greatest care." Surveys show that successful companies in the long term tend to be ethical companies. For example, the Ethics Resource Center studied 21 companies that have written codes of conduct, all stating that serving the public was central to the company's existence. The study found that a $30,000 investment in those companies 30 years ago would today be worth almost nine times as much as the same investment in a composite of the Dow Jones Industrial Index - well over $1 million. The Direct Selling Association, which I chaired from 1991 to 1993, established a code of ethics for consumers of our products. These codes of ethics are considered by many in our industry to be critical to our continued growth. Under a grant from the Direct Selling Education Foundation, Dr. Thomas Wotruba of San Diego State University has prepared an excellent case history, "Moral Suasion," on the Direct Selling Association's code of ethics. [For more information on the case history, published in July 1995, contact DSEF, Washington, D.C.] We need more ethical role models. Time magazine has stated that common street crime costs the U.S. about $4 billion per year while white-collar crime drains at least $40 billion yearly from corporations and government. A George Washington University professor studied the nation's 500 largest corporations and concluded that two-thirds of these companies have been involved in some form of illegal behavior in the past 10 years. Some say unethical behavior with all its gray areas is certainly harder to define. So if illegal activity is this high, the incidence of unethical behavior may be even higher. There are also those who say that there's not an ethical breakdown unique to our time, just more media telling us all about it. In recent years, television networks have been cited for faking the news - with simulations, such as the "exploding pickup truck," that were not always identified as such. More and more sources are being paid by the media for so-called "news." The media itself is not exempt from ethical dilemmas. Nor is the entertainment industry, as witnessed by the recent fracas at Time Warner over "gansta" rap. Quickly Take the High Ground During the '80s, we heard a lot about ethics problems, such as conflicts of interest, and insider trading. But, they're minor compared to what a lack of moral leadership can mean. Moral leaders quickly take the high ground. In the Tylenol incident of 1982, James E. Burke, chairman of Johnson & Johnson, and his lieutenants moved quickly and ethically for their company's longterm benefit. There was financial loss, but a quick and strong recovery. Loyalty to the product and trust in the company proved its value. Here are bits from my mosaic of ethics: 1. Don't let problems fester. Festering problems evolve into bad situations. 2. Pay attention to the detail. Use the little things to establish your own ethical mosaic.

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3. Be intolerant of the lack of ethics on the Fart of anyone in your organization. Speak up - resign if necessary - but don't "go along with it." 4. Never knock the competition. We tell this to both our sales force and our employees. 5. Don't just do the legal thing; do the right thing. It feels good. Your staff can sleep at night - and so can you. 6. Don't take ethics for granted. Read about it, attend seminars, and talk to your bosses, peers, and friends. 7. You need to have a code of ethics, but you also need the competence and guts to follow it. Successful organizations are live and bionic organisms that require constant feeding, exercise, a certain tension, but especially, continual motivation. This is not the "fear motivation" that most use. Even executives who understand that coercion and threats destroy motivation may fail to realize that the same can be true of cash rewards. Punishments and rewards are not really opposites. They are two sides of the same coin. Rewards can weaken relationships, deter risk taking, lessen incentive, and cause your organization to gradually cease doing all the little things that add up to customer retention! Loving what you do is a more powerful motivation than money. You really have to care about your customers, be they in the sales force, other employees, or ultimate customers. The issues that really matter to a good worker are content, choice, and collaboration. Content is a job's task. To do a good job, people have to have a good job to do. Choice means that workers should participate in decisions about what they should do. Collaboration means they should be able to work together in effective teams. How can we motivate today's gun-shy workforce in a rigid hierarchy? We can't, not over the long haul. If we think the stick is actually getting us somewhere, we're fools. We have to overturn our hierarchy, put our customers on top, and empower our organization to serve those customers. Managing by the Golden Rule In top-heavy, dinosaur companies, invariably you'll find that the workers, the people actually producing the products and services, don't really have the mechanisms to communicate problems and opportunities from their front-line vantage point to management. They're often discouraged from speaking up or making waves. Too many managers shoot the messenger. So what happens? The worker just looks the other way, and little by little, incrementally, the quality of the company's product declines. And the "I-don't-care, can't-do-anything-about-itanyway" apathy spreads like a virus that accelerates the degradation of both product and service. Soon the company is getting stomped by its competition and the "only" solution that management can think up is to use cheaper material, lay off workers, close plants, and vote the CEO a raise for his brilliance in cutting costs and adding some temporary increase to the quarterly P&L. If you study Mary Kay, you'll see we really are a "caring" organization. People still laugh, even as they admire her success, when Mary Kay tells then her ideas on people management are based on the Golden Rule - management by caring and sharing. I believe Mary Kay's "core values" are a foundation for that model. In presenting these I'm grateful that I work for a company where we don't have to leave our brains or our values at home when we come to work each morning. * We believe in integrity and fairness in every aspect or our lives as expressed by the Golden Rule. * We believe that service and quality are essential to our success. * We believe that enthusiasm produces a positive, can-do attitude, which is a real source of inspiration in working toward our goals.

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* We believe that leadership among our sales force and employees is the key to personal and corporate growth. * We believe the priorities of faith, family, and career lead to a balanced life. People want to work, they want to create, they want to produce, they want families, and they want their families to live well. They want to live in faith and peace, in a clean, safe world. They want someone to care for; they want someone to care about them, to recognize them and reward them for their contributions. Caring competence allows us to quickly take the high ground, to use our ethical mosaic to influence those around us, and to help make our companies better. In his work Equality, Tolerance, and Loyalty, Andrew R. Cecil points out, "When freedom is not understood as an opportunity for people to make moral, responsible decisions, it may mean license for the powerful to oppress and exploit the weak, who yearn for equality. The highest value of democracy is the effort to find the truth through competition and the testing of ideas, but tolerance cannot be extended to those who are determined to destroy that value. As paradoxical as it may sound, intolerance of intolerance defends tolerance." But the key, Cecil points out, is that "Democracy works on behalf of human dignity and human worth. Its the only form of government that allows and cultivates human dignity. Equality, tolerance, and loyalty are indispensable for a nation to remain free. They unleash the individual's sense of self-worth, his self-discipline, his freedom to choose among the countless causes that exist in a free society, and his recognition of the duty to preserve the social order that makes such choices possible." I'm not a saint or an ethicist. I am a practical businessman exposed to a world of tens of millions of consumers and millions of independent entrepreneurs. That exposure helps me to believe in people's basic sense of fairness, of ethics. Inside yourself, you can smell, see, and feel the rightness of things. Trust yourself. Listen to your gut - to that small quiet voice that can come at some of the most peculiar times. Quickly take the high ground. Do it consistently and you will make yourself proud, make your career grow, make your company succeed. Richard C. Bartlett is vice chairman of Mary Kay Corporation in Dallas. Bartlett's comments on ethics were originally published in Executive Excellence, a newsletter based in Provo, Utah; he updated his essay for Business Strategy.

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