The Tao of Business Ethics: Making Good Decisions in a World of Competing Pressures

1. The Tao ofBusiness Ethics:Making Good Decisions in a World of Competing Pressures A Presentation by the Human Resource Institute www.HRInstitute.info

2. The Human Resource Institute HRI promotes strategic thinking about the major issues affecting the management of people today and the trends that are shaping the future. www.HRInstitute.info

3. Assertion Number One In order to understand business ethics on a deep level, we have to appreciate the tensions inherent in the term. Ultimately, this makes it easier to create the policies and develop the corporate cultures that support ethical actions.

4. What do these phrases have in common? alone togetherdemanding patientdetailed summaryeducated guessgraduate studenthead butt heavy gasinstant classicjob securityjumbo shrimpplastic glasstight slacks

5. OxymoronA figure of speech by which a locution produces an effect by seeming self-contradiction –Random House College Dictionary Business Ethics – one of the phrases listed at www.oxymoronlist.com

6. Business Ethics the study and evaluation of decision making by businesses according to moral concepts and judgments. Ethical questions range from practical, narrowly defined issues, such as a company’s obligation to be honest with its customers, to broader social and philosophical questions, such as a company’s responsibility to preserve the environment and protect employee rights. Many ethical conflictsdevelop from conflicts between the differing interests of company owners and their workers, customers, and surrounding community. Managers must balance the ideal against the practical -- the need to produce a reasonable profit for the company’s shareholders with honesty in business practices, safety in the workplace, and larger environmental and social issues. The Columbia Encyclopedia, Sixth Edition.  2001.

7. Business Ethics (cont.) Ethical issues in business have become more complicated because of the global and diversified nature of many large corporations and because of the complexity of government regulations that define the limits of criminal behavior.For example, multinational corporations operate in countries where bribery, sexual harassment, racial discrimination, and lack of concern for the environment are neither illegal nor unethical or unusual. The company must decide whether to adhere to constant ethical principles or to adjust to the local rules to maximize profits. As the costs of corporate and white-collar crime can be high, both for society and individual businesses, many business and trade associations have established ethical codes for companies, managers, and employees. The Columbia Encyclopedia, Sixth Edition.  2001.

8. Some of the “Paradoxes” Facing Many Businesses Today Obey the rules... …but think outside the box. Use stock options to get execs to act like owners… …but don’t reward irresponsible behaviors Be honest with your stockholders... …but try hard to keep the stock high Empower employees... …but monitor them carefully because you’re legally liable for their behaviors Win the “war for talent”... …but don’t encourage arrogance or greed Network, network, network... …but beware the Old Boys’ Club that can breed corruption

9. More “Paradoxes” …but try not to let customer service cut too deeply into profit margins Treat customers well... Treat employees like your most important resource... …but in the accounting process, treat them as expenses Create a more diverse workforce... …but hire people from the most prestigious and expensive universities Develop codes of ethics... …even if the corporate culture mainly rewards those who “make their numbers” Go global ... …but maintain the cultural values of the home office

10. Top six reasons for contacting corporate ethics offices 2000 survey of 213 members representing 150 firms (average workforce = 32,400) Source: Ethics Officer Association

11. These Conflicting Pressures May Grow More Intense in Coming YearsDue to the Process of “Metaconvergence” According to futurists Alvin and Heidi Toffler, metaconvergence is the tightening of connections among spheres that have hitherto been more independent. In an interview with Strategy & Leadership magazine, Alvin Toffler stated, "The 'infosphere' is more tightly connected to the 'technosphere,' and the 'technosphere' is more closely connected to the 'sociosphere' or the 'powersphere' of society, and so on, radically multiplying the interaction among them."

12. More on Metaconvergence "Culture, religion, politics, environment, ethics, are all going to interpenetrate one another to an extent never before seen, and they will, in turn, penetrate business in all sorts of strange new ways," Toffler claims. One result of this is that businesses may become less and less insulated from the sort of social pressures that have historically been viewed as relatively unimportant to the bottom line.

13. Assertion Number Two Among corporations, the primary method of trying to reduce ethics violations is through formalized rules, policies and written codes.

14. How do firms with overseas operations address ethics among their suppliers? Source: KPMG LLP

15. Percentage of U.S. companies with written ethics standards and training programs focused on ethics 2000 survey of 1,500 public and private employees Source: 2000 National Business Ethics Survey

16. Among companies providing ethics training (39% of all surveyed firms), the percent giving it to these groups 2000 survey of 154 U.S. and Canadian private and public firms Source: KPMG LLP

17. Most common components of written ethics codes 2000 survey of 154 U.S. and Canadian private and public firms Source: KPMG LLP

18. Assertion Number Three Written and formalized codes are necessary but, in most cases, not sufficient. That’s because they fail to take into consideration corporate culture and the ethical “ecosystem” in which companies operate.

19. What do employees believe are the origins of unethical behavior? 2000 survey of 2,390 working adults Source: KPMG LLP

20. Allen Lovell’s “Ethics as a Dependent Variable in Individual and Organizational Decision Making.”Journal of Business Ethics, May 2002. Excerpt: 1) “Ethical behavior was only infrequently a function of personal values. Rather, it appeared as a dependent variable, dictated by externally generated pressures, but most notably the fear of jeopardizing one’s current or future employment prospects and the consequences of this for the individual’s dependents.”

21. Allen Lovell’s “Ethics as a Dependent Variable in Individual and Organizational Decision Making.”Journal of Business Ethics, May 2002. Excerpt: 3) “The combination of loyalty to one’s organization; loyalty to managerial colleagues/superiors; and fear for one’s own position should one refuse to ‘keep one’s head below the parapet,’ led in each case to a personal decision to ‘do nothing.’”

22. Allen Lovell’s “Ethics as a Dependent Variable in Individual and Organizational Decision Making.”Journal of Business Ethics, May 2002. Excerpt: 4) In many cases, “ethical cynicism” (acquiescing to internal pressures and choosing to live with questionable behaviors) was the norm. The implications “pose serious concerns over the sustainability, or least compliance, with professional codes of conduct…”

23. Allen Lovell’s “Ethics as a Dependent Variable in Individual and Organizational Decision Making.”Journal of Business Ethics, May 2002. Excerpt: 5) “Much still needs to be done to improve accountability and governance practices, but more particularly, the confidence of (senior) managers to allow and tolerate dissent.”

24. Allen Lovell’s “Ethics as a Dependent Variable in Individual and Organizational Decision Making.”Journal of Business Ethics, May 2002. Excerpt: 6) “Policy statements, mission statements, codes of conduct and espoused statements of corporate values are little more than fluff if actual practice flies in the face of these managerial artifacts.”

25. 23% of executive resumes were found to contain inaccuracies. Below are the most common misrepresentations 2001 review of 7,000 executive résumés Source: Christian & Timbers

26. Assertion Four Corporate cultures are themselves deeply affected by the changing societies in which they operate.

27. Business Standards Value Systems Legislation Formal ethics programs and policies are part of design intended to create ethical infrastructure. “Bad people” disregard this structure. Organized Labor Organized Labor Legislation Value Systems Business Standards Mental Model for Ethics: The Corporation as a Bathysphere Pressured by Outside Forces

28. Stockholder Market Expectations as Market Rises Political Pressure to Restrain SEC Regulation1 High-Tech Investments/ New Businesses Global Mergers and Competition Executive Actions Full Employment4 Board Pressure Growing Turnover Rates for Execs2 Large Increase in Stock Option Grants3 New Technologies Accounting Practices White-Collar Crime5 Changing Demographics7 “War for Talent”6 Mental Model for Pressures in the Late 1990s: The Corporation as a Living Cell Amid a Larger Ecology

29. 1Political Pressure to Restrain SEC Regulation- An example, according to the New York Times, was the pressure exerted from various members of Congress to keep the SEC from curtailing the amount of work that reputedly independent auditors could do for their audit clients.2Growing Turnover Rates for Execs - CEOs who were appointed after 1985 were three times more likely to lose their positions than CEOs selected before 1985, according to MIT Sloan Management Review.3Large Increase in Stock OptionGrants - By the end of the 1990s, stock options represented half of executive pay, up from just a quarter in the mid-1980s, according to Workspan magazine.

30. 4Full Employment - The unemployment rate gradually dipped from 7.8% in June of 1992 to a low of 3.9% in October of 2000. Some economists consider this virtually full employment.5White-Collar Crime - The number of government and private lawsuits for securities fraud and other violations more than doubled between 1997 and 20016“War for Talent” - Notion from a McKinsey and Company report saying there’s a scarcity of top talent and companies must battle one another for it.7Changing Demographics - The U.S. population is aging, and legal experts say that as this occurs, the crime of choice for perpetrators becomes fraud.

31. Outside of Corporations Recent Structural/Rule-Based Changes Sarbanes-Oxley Act Accountants will become subject to a regulatory framework similar to that governing the conduct of broker-dealers and others in the financial services industry Public Company Accounting Oversight Board - promulgates rules and regulations governing accountant conduct and responsibility Executive Certification - CEO and CFO certification of periodic reports Creates new crimes related to corporate behavior as well as increases penalties for existing white-collar criminal acts

32. Enhanced disclosure and reporting requirements Forfeiture of bonuses and profits in some cases of misconduct Potentially bars corporate officers or directors of public companies that have violated the law from serving in similar capacities in other companies Proposed New York Stock Exchange Rules The majority of board members should be independent Non-executive directors hold regular meetings separately from management Shareholders vote on all stock-option plans

33. Changes in the Internal Corporate Environment 43% of corporate executives responding to a Kennedy Information poll said they were changing the way they do business Over 80 companies have announced they will treat stock options as a cost of doing business, according to Fortune magazine (Sept. 16) Corporate Example: Krispy Kreme - formed a governance committee of independent board members, corporate loans to executives have been banned, and the top five executives can sell stock options only in preplanned, immediately disclosed blocks. Corporate Example: Diebold - Developed an online “hot line” to give dissenting voices a chance to express concerns anonymously.

34. Assertion Number Five With a more holistic perspective, we might be better able to foresee future ethical problems. As it stands, business people have a spotty record in terms of predicting the ethical areas on which we should be most focused in the near future.

35. On one hand, HRI surveys suggest that large U.S. firms are aware that the subject of ethics in business is one of the top issues affecting people management these days. Out of 92 issues, it has been ranked in the top 10 for years. 2001 Leadership Focus on the Customer Managing/Coping with Change Improving Productivity Information Technology The Information Super Highway Healthcare Costs Rate of Economic Growth Enhancing Quality Ethics in Business 1999 Leadership Managing Change Focus on the Customer Information Technology Improving Productivity Employee Communications Enhancing Quality The Information Super Highway Healthcare Costs Ethics in Business 1997 Leadership Managing Change Focus on the Customer Improving Productivity Information Technology Enhancing Quality Employee Communications Electronic Transfer of Information Ethics in Business Skill Level of the Workforce 1 2 3 4 5 6 7 8 9 10

36. On the other hand, it’s seldom seen as a very important issue in the future. When asked to list the top issues affecting people management 10 years hence, business ethics doesn’t make it to the top of the list. 2001 Leadership Managing/Coping with Change Focus on the Customer Healthcare Costs Information Technology Skill Level of the Workforce The Information Super Highway Stimulating Innovation/Creativity Portal Technology Your Country’s GlobalCompetitiveness .................................................. Ethics in Business 1 2 3 4 5 6 7 8 9 10 21 1999 Leadership Information Technology Focus on the Customer Skill Level of the Workforce Managing Change Electronic Transfer of Information The Information Super Highway Healthcare Costs Stimulating Innovation/Creativity Employee Communications ......................................................... 13 Ethics in Business 1997 Information Technology Leadership Focus on the Customer Skill Level of the Workforce Managing Change Electronic Transfer of Information The Information Super Highway Stimulating Innovation/Creativity Improving Productivity Quality of Technical Education ..................................................... 20 Ethics in Business

37. Ethics in Business

38. Ethical matters predicted to be key over the next three to five years 2000 survey of 154 U.S. and Canadian private and public firms Source: KPMG LLP

39. Ethical matters predicted to be key over the next three to five years (cont.) 2000 survey of 154 U.S. and Canadian private and public firms Source: KPMG LLP

40. Ethical matters that have turned out to be key over the last several years Corporate governance- Alleged misconduct at the executive levels of various organizations Conflicts of interest-Alleged insider trading; firms with accounting & consulting interests Fraud and theft-Accounting rules have been bent or broken to mislead stockholders. The number of government and private lawsuits for securities fraud have grown in recent years. Executive salaries and perks - Stock options raising exec salaries and, some say, tempting execs to unethically affect stock prices Global operations - Growing debate on globalization, world poverty - e.g., WTO protests

41. Comparison of factors influencing corporate commitment to ethics 2000 survey of 213 members representing 150 firms (average workforce = 32,400) Source: Ethics Officer Association

42. Assertion Six Deception is associated with the worst types of corporate ethical violations. In a socioeconomic system that is increasingly based on information, deception will probably be viewed as a serious ethical violation for some time to come.

43. Factors influencing the public’s impression of an organization 2002 international survey of 1,482 people Source: World Bank Institute

44. Deceiving workers is the corporate action most commonly cited as a serious ethics violation... Company Actions Seen as Serious 2001 study of 557 employers and employees Source: Society of Financial Service Professionals and Walker Information

45. ...while performing drug testing is considered a serious ethics violation by fewer than a third of respondents Company Actions Seen as Serious 2001 study of 557 employers and employees Source: Society of Financial Service Professionals and Walker Information

46. Substance abuse on the job is considered a serious ethics violation by most... Worker Actions Seen as Serious Ethics Violations 2001 study of 557 employers and employees Source: Society of Financial Service Professionals and Walker Information

47. ...while whistle-blowing is not viewed by many as a serious ethics violation 2001 study of 557 employers and employees Source: Society of Financial Service Professionals and Walker Information

48. Review of Major Points: 1) There’s a natural tension in the term “business ethics,” a tension that must be examined and understood. 2) Among corporations, the primary method of trying to reduce ethics violations is through formalized rules, policies and written codes. 3) But formal codes aren’t usually sufficient because they fail to take into consideration corporate culture and the ethical “ecosystem” in which companies operate. 4) Corporate cultures are themselves deeply affected by the changing societies in which they operate. 5) With a more holistic perspective, we might be better able to foresee future ethical problems. 6) For example, in a socioeconomic system that is increasingly based on information, it’s likely that deception will be viewed as a serious ethical violation for some time to come.

49. Conclusion: A Historical Perspective on the Matter of Business Ethics First and foremost, we must stand firmly on a basis of good, sound ethics. We intend to do what is right for the ample and sufficient reason that it is right. If business is hurt by the stern exposure of crookedness and the result of efforts to punish the crooked man, then business must be hurt, even though good men are involved in the hurting, until it so adjusts itself that it is possible to prosecute wrong-doing without stampeding the business community into a terror-struck defence of the wrong-doers and an angry assault upon those who have exposed them. Theodore Roosevelt (1858–1919).   History as Literature.  1913.