One way of promoting social responsibility in organizations is teaching supervisors about the importance of ethics. In general, ethics refers to the principles people use to distinguish what is morally right. For example, most people would agree that cheating is wrong, or at least they would agree that it is unethical to cheat an elderly widow out of her life savings. Many decisions about ethics are more difficult.
Some people say that “business ethics” is an oxymoron—that is, a contradiction in terms. Can businesspeople behave ethically, and if so, should they? One view is that profitability should be the overriding concern of business. This view makes it easy to behave ethically unless an ethical choice is also costly to the organization. Another view is that organizations and their employees have an obligation to behave ethically, even if doing so cuts into short-term economic advantages. The implication is that we are all better off if organizations and individuals consider the common good.
As a supervisor, you will be looking for ethical behavior in your employees and also making sure you contribute to an environment that encourages ethical actions. Research suggests that such efforts do make a difference. A recent survey by the Ethics Resource Center found that more than half of employees in business and government have observed unethical conduct, but more than 4 in 10 of them keep that information to themselves. At the same time, the most important factor in whether companies have a strong ethical culture is whether supervisors demonstrate ethical behavior and reinforce employees’ ethical actions. Figure 4.1 summarizes some trends in the Ethics Resource Center’s annual survey between 2000 and 2007.
Benefits of Ethical Behavior
In addition to being morally right, ethical behavior offers potential advantages to the organization. To be known as an ethical individual or organization is a satisfying way of maintaining a reputation for high standards. In a study of hundreds of salespeople, those who perceived that their organization maintained high ethical standards were more likely to trust their supervisor and be satisfied with their job, and salespeople who trusted their supervisor were more likely to plan to stay with the company. Achieving this type of ethical climate is mostly a matter of day-to-day practices. For example, employees expect their supervisor to be fair. One way to demonstrate fairness involves performance reviews. Supervisors can give fair Performance Appraisals by setting clear, measurable standards, making sure employees know and understand these standards, and scoring performance objectively according to the standards.
Ethical behavior is part of a range of behaviors that ensure an organization’s long-term health and success. For a business, that success shows up in the performance of the company’s stock. Some investors go out of their way to select companies with a good track record of ethical behavior. Jim Huguet built a high-performing portfolio of stocks by looking at various performance measures including the companies’ “corporate governance”—systems for ensuring that the leaders put the company’s success ahead of enriching themselves. A number of investment firms, including Calvert Funds, Domini Social Investments, and Pax World Funds, list ethical behavior as one of their criteria for choosing stocks. Analysts at such firms are likely to steer away from companies that have been fined by government regulators, have been audited by supposedly independent firms that are also earning fees for consulting, or pay executives more than $10 million per year.
Ethical behavior can also improve the organization’s relations with the community, which tends to attract customers and top-notch employees. Children’s clothing company Hanna Andersson is well known for its concern for the community. That concern is expressed through charitable giving of a portion of its profits and the Hannadowns program for donating its clothing, which is durable as well as beautiful. The company also pays employees for working up to 16 hours a year as volunteers in their communities. Co-founder Gun Denhart says, “Businesses, like people, don’t live in a vacuum. You can’t have a healthy company in an unhealthy community.” As well as earning approval, ethical behavior tends to reduce public pressure for government regulation—a situation that most managers would view as beneficial.
In contrast, the costs of unethical behavior can be high. Organizations whose employees are unethical may lose respect, customers, and qualified employees who are uncomfortable working in an environment that compromises their moral standards. Unethical and illegal behavior caused the downfall of many companies in recent years, including Enron and Tyco. Others, among them Boeing and Martha Stewart Living Omnimedia, have struggled to recover from scandals.
Unethical behavior has personal consequences as well. Federal employees who accept gifts that fall outside federal government regulations can be suspended, demoted, or even fired. Employees who cheat or steal from their employer may wind up in jail. Even if legal, activities that are against company policy can result in firing. And at the most basic level, a person who behaves unethically has to live with that knowledge day in and day out. Thomas S. Murphy, who once served as chief executive officer of Capital Cities/ABC, says that some of the best advice he ever received was his father’s counsel: “Doing the wrong thing is not worth the loss of one night’s sleep.”
Challenges to Ethical Behavior
Despite these implications, the restructurings, cutbacks, and layoffs of recent years have made ethical behavior harder to encourage. With greater responsibilities, supervisors and other managers in restructured or downsized organizations cannot monitor employees’ day-to-day behavior. At the same time, the uncertainty of the work environment has made many employees afraid of being ethical when doing so conflicts with other goals. Fudging numbers on performance records or producing shoddy merchandise to keep costs down is tempting, if the alternative is to be laid off for failing to meet cost or performance goals. Hard-pressed employees need flexibility, authority, and ethical leadership to create an environment in which to make principled decisions. For an example of circumstances in which ethical decision making was difficult, see “Supervision and Ethics.”
Other challenges arise from the supervisor’s environment. According to Ethics Resource Center President Stuart Gilman, companies that single-mindedly focus on sales or profits can create an environment in which employees feel as if they have to bend the rules. According to Gilman, employees need training and guidance, as well as a readily available source of advice about ethical behavior. Along with high-pressure goals, some organizations create a climate in which employees fear they need to be unethical to save the company’s future or be treated as a team player. Figure 4.2 summarizes the most common reasons people feel pressured to compromise their ethical standards, according to a recent survey.
On a more mundane level, a supervisor may simply find that tolerating lapses of ethics leads employees to behave in increasingly unacceptable ways. For example, if the supervisor looks the other way when employees take home small items like pencils or screws, employees may eventually start “borrowing” bigger items.
Differing Measures of Ethical Behavior
How can supervisors meet these challenges to ethical behavior? A good starting point is to seek guidance from the organization’s code of ethics, if it has adopted one. This is an organization’s written statement of its values and rules for ethical behavior. For instance, Figure 4.3 shows the credo (statement of beliefs) for Johnson & Johnson Corporation, which serves as a code of ethics for that company.
Meeting high ethical standards is especially challenging for those who work with people from more than one culture, because ethical standards can vary from culture to culture. In a study comparing values of professionals in the United States, Canada, and Mexico, respondents from all the countries agreed that honesty is one of the most important qualities for representing ethical standards in three values, and only Mexican professionals put compromise in the top three. Even when ideals match, people in different parts of the world may accept different standards of behavior from businesspeople. Transparency International tracks perceived levels of corruption, such as bribery of public officials, and finds a wide variation in the amount of corrupt practices people observe from country to country. As shown in Figure 4.4, people in Denmark, Finland, and New Zealand observe very little corruption. In contrast, corruption is common in Bangladesh and Haiti. In a recent survey, Nigeria improved, while Iraq, Myanmar, and Somalia fell to the bottom of the rankings. The United States performed about the same, sliding a bit from a 7.5 rating in 2003 to 7.3 in 2007.
If an organization does business in a country where corruption is expected, employees can have more difficulty meeting high standards. Coca-Cola sells beverages in almost every country in the world, with two-thirds of its sales coming from outside the United States. To serve the 9 million stores selling Coke, the company has contracts with hundreds of bottlers, which add water to the company’s trademark concentrate and distribute the soft drinks in cans and bottles. To gain entrance into some countries, the company found that it was expected to use politically connected individuals as its bottlers. In Iran, that person was a relative of the country’s president; in Uzbekistan, it was a son-in-law of the president, who brought in his brother to help run the company. For oil companies, entering a foreign market to drill for oil generally involves negotiating huge contracts with the government, however unsavory that government might be. ExxonMobil’s payments to Angola’s President, Jose Eduardo dos Santos, in the 1990s helped to fund that country’s civil war. The company’s chairman, Lee Raymond, defends such arrangements on the grounds that an oil company cannot choose where to operate: “You kinda have to go where the oil is.”
One reason for perceived differences in corruption levels is that gift giving in the workplace can have different meanings from one culture to another. In the United States, the giving of gifts often is interpreted as bribery, an attempt to buy influence. However, in many parts of the world, giving a gift is the proper way to indicate one’s gratitude toward and respect for the receiver. What can a supervisor do if refusing a gift might insult the giver? Most important, the supervisor must follow company policy, and in many cases, that means turning down the gift. At the same time, however, the supervisor should explain carefully and politely the reason for not accepting the gift. If a supervisor has immigrant employees who might not understand U.S. views about gift giving, this might be an area about which to educate all employees before such a problem arises. Find out if there are any company policies or codes of ethics covering the situation. Following these policies is essential for all employees, including supervisors, and provides a way to show that turning down a gift is not meant as an insult to the giver. Some companies have helped individuals make ethical choices in an international context by signing the voluntary United Nations Global Compact. The compact includes principles of global citizenship, such as working against extortion and bribery. So far, 1,700 organizations have signed the compact; of these, are U.S. organizations, including Nike and Goldman Sachs.
Understanding Cultural Differences also can help businesspeople interpret behavior so they can arrive at agreements that are acceptable on both sides. For example, Western ideals tend to focus on individual behavior, whereas in China, standards are based more on context, including relationships. In other words, one person’s duty to another depends on the nature of their relationship, say, father to son or supervisor to employee. People doing business in China find that they have to begin by getting to know one another and establishing a relationship of trust. In China, that relationship of trust is likely to count for more than any particular laws that are on the books, but may or may not be enforced. So, an American businessperson in China might respect Chinese values by taking time to develop trusting relationships and expect Chinese colleagues to honor Western values by agreeing to follow certain rules of conduct.
Code of Ethics: An Example
The Coca-Cola Company, a long-standing leader in the beverage industry, has recognized the importance of upholding ethical standards. In the company’s Code of Ethics, it is written that managers should:
• Ensure that the people you supervise understand their responsibilities under the Code and other Company policies.
• Take opportunities to discuss the Code and reinforce the importance of ethics and compliance with employees.
• Create an environment where employees feel comfortable raising concerns.
• Consider conduct in relation to the Code and other Company policies when evaluating employees.
• Never encourage or direct employees to achieve business results at the expense of ethical conduct or compliance with the Code or the law.
• Always act to stop violations of the Code or the law by those you supervise.
By writing a Code of Ethics, the Coca-Cola Company has demonstrated the importance of upholding ethical standards in the workplace.
SUPERVISION AND ETHICS
CAR RENTAL EMPLOYEES NEED AUTHORITY TO BE ETHICAL
In Slidell, Louisiana, along the Gulf Coast, the Perez family was among those receiving orders to evacuate on a Saturday morning in 2005 as Hurricane Katrina approached the coastline. For the Perezes, evacuating posed an additional challenge: Their car was in the shop for repairs. The family had obtained a rental car for that weekend, so they loaded it with their belongings and headed to Alabama for what they anticipated would be a short stay at the home of some friends.
The next day, the hurricane passed directly over Slidell, and floodwaters rose to 20 feet in some parts of town. In the days following the hurricane, returning to the devastated area was impossible. Still, that Tuesday, the car was due back at the flooded rental office.
Unsure what to do, the Perezes called the company’s main customer service office. The representative had no ideas either and asked them to call back “in a couple of days.” When asked how this would affect the terms of the contract, the representative could offer no information. Two days later, the family called again, and a representative said they should return it to the local Alabama facility and that they would not be charged for the two extra days.
However, when the Perezes returned the car, they received a bill for a full six-day rental—and at more than four times the rate per day charged in their original contract. Instead of about $150, the family was asked to pay more than $1,500 for the car. When the Perezes objected, the agent at the counter insisted that the rules are the rules, and the family had not adhered to their original contract. The company could not waver from the contract, the agent maintained, because it was “just a business.”
No one at the office was willing to call the central customer service office and verify the original promise, so the Perezes called on their cell phone and negotiated a total of $332. A week later, they managed to reach the person who had made the original promise, and after an hour’s discussion, they obtained a refund of the difference.
Should employees bend contract terms to assist victims of a disaster? Do businesses as well as individuals have an ethical duty to help people in need? Apparently, one customer service representative was paralyzed by these questions. The second thought a discount was the right thing to do and perhaps that was the best way to fulfill the agency’s advertising promise to “try harder.” The third agent focused only on the contract. (Of course, if the Perezes had followed the contract strictly and returned the car to Slidell, that car would have been underwater with all the other vehicles in the facility’s parking lot.) All three agents’ actions were influenced by their sense of what the company would allow them to do.
FIGURE 4.3 The Johnson & Johnson Credo (Statement of Beliefs)
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, the 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.
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. 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 stockholder should realize a fair return.