The Role of Ethics in Corporate Decision-Making
Among the numerous factors shaping an organization’s corporate culture, ethical and psychological cultures are key. Therefore, let us first consider the issue of institutionalizing the ethical and psychological foundations of organizational activity.
The development of ethical and psychological foundations for business and management must begin with a specific organization. Increasingly, organizations and companies for which public perception of honesty and integrity takes precedence over the desire to maximize profits by any means are developing codes of ethics, which
- guide managers and employees on how to act when making decisions based on an analysis of values;
- formally require all employees to consider the ethical and psychological aspects of the decisions they make;
- serve as a basis for discussions on ethical conduct.
Each company develops its own ethical (corporate) code with a corresponding title: Code of Ethics, Code of Values, Code of Conduct, Code of Rules, or Code of Values and Principles. For example:
- Code of Business Ethics (“Procter & Gamble”);
- Code of Business Ethics (“Unilever”);
- Code of Business Conduct (“Coca-Cola”);
- The Company’s Code of General Business Principles (“Royal Dutch Shell”);
The first codes of ethics appeared in the United States in the early 20th century. The codes included concise statements of principles (examples: “To work for a better life and a better world for all,” “The company adheres to the standards of free enterprise,” etc.) and a list of certain rules of conduct regarding customers and competitors.
Since the early 1950s, the adoption of codes has spread not only to American firms but also to European, Canadian, and Japanese firms. An analysis of the literature provides insight into the structure of, for example, Japanese codes.
A. Attitude toward the company:
- loyalty;
- gratitude.
B. Attitude toward work:
- diligence;
- responsibility;
- diligence;
- thrift;
- a sense of pride in one’s work.
B. Attitude toward elders:
- respect;
- politeness.
D. Attitude toward employees:
- cooperation;
- recognition of merit.
Provisions regarding gifts, bribes, customer relations, the environment, and health and safety are gradually being included in the codes. Sanctions (reprimands, dismissal) were imposed on those who violated the provisions of the codes. In many cases, the organization’s employees were required to provide written consent to comply with the code’s requirements.
An example of a modern code is Procter & Gamble’s Code of Business Ethics, which defines the company’s core moral and ethical values and principles of operation.
The values on which the company’s activities are based:
- a team composed of the world’s best specialists;
- a responsible attitude toward company property (as if it were one’s own); a commitment to ensuring the company’s long-term success, fulfilling assigned tasks, and improving work efficiency;
- honesty and openness in relationships among employees; strict adherence to the letter of the law; making decisions based on complete information and evaluating risks;
- striving to excel in the performance of assigned tasks; improving the quality of work; exercising leadership in one’s field;
- mutual trust in relationships among colleagues, clients, and users.
The principles and rules of conduct, which are based on moral values, can be summarized as follows:
- respect for each person’s individuality;
- the indivisibility of the company’s interests and those of each employee;
- clearly defined and agreed-upon goals and principles;
- innovation as the foundation of success;
- a focus in the production sphere on consumer needs and on close, mutually beneficial relationships with customers and business partners;
- encouraging employees’ professional expertise;
- striving to be the best in all areas of significance to the company;
- collaborating in a spirit of mutual trust and maintaining partnerships with customers, suppliers, higher education institutions, and government agencies.
Texas Instruments has developed an ethics program for all 60,000 of its employees scattered around the world. It is overseen by a Chief Ethics Officer, who has an annual budget of $700,000. The company regularly distributes articles via its global email network on rules for accepting gifts, cases of theft, illegal software copying, and awards received in various countries for adherence to the company’s ethical principles. The Director of Ethics can be contacted via a toll-free “hotline,” through which employees can report issues anonymously, or by sending a letter to a designated address or via email. The company’s focus on ethical issues stems from its strategic position: “Our good reputation is just as important as the technologies we produce.” The company developed its first code of ethics in 1961 and has strictly adhered to it ever since.
At “McDonnell Douglas”, every employee receives a card containing a condensed version of the company’s code of ethics and guidelines for making ethically sound decisions. It is convenient to always keep this card on hand. The company requires its employees to adhere to strict ethical standards. The company’s code of ethics emphasizes: “Honesty and ethics exist solely within a person or not at all. Either an individual behaves honestly and ethically, or they do not. For honesty and ethics to be hallmarks, we, as members of the Corporation, must strive to:
- be honest and trustworthy in all matters;
- fulfill the tasks assigned to us and the commitments we have undertaken;
- cooperate constructively and assist colleagues in all aspects of their work;
- treat our colleagues, customers, and others with honesty and respect;
- comply with the law in all our actions;
- loyally serve our company and do our utmost to improve the quality of life in the world in which we live.
Honesty and adherence to high ethical standards require hard work, courage, and (sometimes) difficult choices; at times, we have to turn down tempting opportunities. But in the end, our good deeds benefit us as well.”
Companies are increasingly establishing Ethics Committees, which consist of members of senior management and are responsible for monitoring employees’ adherence to ethical principles and making decisions in the event of disputes. For example, Motorola’s Ethics Committee has the authority to interpret and amend the key provisions of the code of ethics, inform employees of changes made to it, and make decisions regarding employees who violate the code.
In some companies, a Commissioner or Ethics Officer is appointed.
Companies widely use training programs, which are designed to promote ethical principles among employees.
According to research, nearly all large American corporations and half of small firms have their own codes of ethics. In Western Europe, there is a certain degree of skepticism regarding the effectiveness of these codes in improving employee ethics. Codes did not appear there until the mid-1980s, and the process of their development and implementation is proceeding somewhat more slowly than in the United States. For example, in Canada, approximately 50% of companies have codes, while in England, the figure is about 40%.
Experience in developing and implementing codes of ethics shows that this is only the first step toward applying the norms of business ethics. Certain challenges arise along the way. The main one is how to strike a balance between the ethical and economic aspects of business. Managers are very often required to achieve their goals by any means necessary.
There is also a need to develop practical mechanisms through which managers can foster ethical behavior among the organization’s employees.
An example of this is the statement by Michael Dagno, director of the Washington-based “Ethics Resource Center”: “In my opinion, many modern corporations suffer from a certain moral dualism, where an employee can hang his ethics on a nail and say, ‘Now I’m doing business, and I’m not going to act the way I teach my seven-year-old son to act.’ I think this practice is particularly dangerous for our culture.” According to Derlow Des, the only way out of this situation “is to find ways to make ethics a core value of the company, one that is prioritized in the decision-making process.”
Basic concepts and keywords: institutionalization of business ethics, codes of ethics, ethics committee.