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Ethics best practice

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Kenneth R AndrewsThe corporate environment is a difficult context for the exercise of moral judgement.

When the people whose moral judgement might ultimately determine the ethical character of their companies first come to work, they enter a community whose values will influence their moral judgement. Anyone has to be affected by the economic function of the corporation. Ethical inquiry does not flourish if individuals are encouraged to pursue their own and their companies´well-being without regard to fairness. Emphasis on the maximization of shareholders´interest and dedication to the survival and compensation of management will naturally tend to stress the rewards of achievement over the fairness of methods.

At the writing of his book Ethics in Practice ( Harvard Business School Press ), the book´s editor, Kenneth Andrews, was a Professor of Management at Harvard Business School, and Editor of The Harvard Business Review. The book includes the results of a study by the US-based Business Roundtable describing ethical policy and practices widely thought to embody the critical success factors for ethical best practice.

Ethical policy can be easily dismissed as irrelevant if the invisible hand of the market is believed to moderate adequately the adverse effects of the pursuit of self-interest. The aspiring manager will also be influenced by the way he or she is judged. Under pressure to get ahead, the individual of whose native integrity we are hopeful is tempted to pursue advancement for its own sake at the expense of colleagues, and to take advantage of myopic evaluation of performance. People will do what they are rewarded for doing. The quantifiable results of management activity are much more visible than the quality and consequencies of the means by which they were attained.

When the corporation grows beyond the direct influence of its leader, the control and enforcement of all policy, but especially that established for corporate ethics, become difficult. The development of layers of responsibility brings with it communications problems. Distance from bureaucratic centers complicates evaluation of performance, driving it to numbers. Where dispersed operations traverse cultures and countries, a consensus about moral values is hard to achieve and maintain.

The exercise of ethical leadership in the corporation

The corporation is an organization in which people influence one another to establish accepted values and ways of doing things. Corporate leaders have more power than elected officials in the larger society to choose who will join or remain in the association. Careless or lazy management will let the organization drift or follow its multiple inclinations here and there as it continues its economic performance along lines previously laid out and leaves its ethics to chance. Resolute management does not find ethical problems insurmountable – once these problems have been separated from their camouflage.

For reasons that are obvious, the personal deportment of the chief executive in the exercise of moral judgement is universally acknowledged to be more influential than written policy. The CEO who orders the immediate recall of all of a product because of a quality defect affecting a limited number of untraceable shipments, at a cost of millions of dollars in sales, sends a very different message from the executive who tacitly condones overcharging for the repair of rental cars.

“The personal deportment of the chief executive in the exercise of moral judgement is universally acknowledged to be more influential than written policy.“

Once it has been determined that ethical intention and performance will be managed rather than left untended in the corrosive environment of unprincipled competition, then it is usual to determine and to make explicit corporate policy in much the same way as in other dimensions of corporate purpose.

The administration of ethical behavior can be strategic in intention and concretely supervised. A study by the Business Roundtable describes ethical policy and practice in ten companies widely thought of as both economically successful and ethical. The study identifies eight elements influential in sustaining the desired level of ethical performance:

  • Continuity of values in the leadership of successive chief executive officers.
  • Development of a tradition of integrity in the promulgation of standards in all areas where quality is essential.
  • Written statements of belief and policy, perhaps in the form of a credo or code, and in critical cases requiring annual signed statements signifying compliance.
  • Education and training in the meaning of policy and the seriousness of intent.
  • Consideration of ethical performance and interest in community affairs in performance evaluation and compensation.
  • Open decision-making in which differences of opinion are welcomed and the relevance of ethical standards to proposals is discussed.
  • A control system, fortified by audit, to supplement trust with broad surveillance.
  • Strict and public punishment of identified violations of law or policy.

Where there is no tradition to draw on and where a new era must be launched, an ethical turnaround must depend on explicit training, specific policy, forums for discussion, focused controls and appropriate rewards and punishment. In this case announcing decisions to sustain quality or correct mistakes at the expense of short-term profit does more than a written policy to maintain tradition. The corporation can knowingly exert as much influence in the direction of ethically correct decisions as it sometimes unwittingly does in the other direction.

June 2011.