Ethical Behavior and Organizational Culture

Chapter 1 of the text stresses a lot on Ethics/Ethical Behavior.  According to the text, "Numerous writers on business ethics consistently stress that the primary determinant of ethical behavior is organizational culture, which is the shared values and beliefs in an organization."
The cultures of an organization are what effect employee decisions.  That being said, HR plays a vital role in ensuring ethical behavior in companies.

Introduction of Ethics (Past and Present)

Companies seem to all define ethics differently, but how many ethics have we actually adopted from the past?  A study was performed of the fortune 1000 companies to see which ethics have actually been adopted as the years go by.

The study examined the following:

• Ethics-oriented policy statements
• Freestanding ethics offices
• Ethics and compliance telephone reporting/advice systems
• Top management and departmental involvement in ethics activities
• Usage of ethics training and other ethics awareness activities
• Investigatory functions
• Evaluation of ethics program activities

The results showed a high degree of corporate adoption of ethics policies.  However there was a wide variability in the extent to which these policies are implemented.

Just as expected, the firms differed substantially in their efforts to see that those policies or codes actually are put into use.  The only correlation that all firms seemed to share was that firms committed to the lower cost, possibly more symbolic side of ethics activity. (Cochran, 1999)

Defining Ethics (What's the purpose?)

A lot of people don't understand the purpose of ethics.  Why do we study them, and why are they so important?  The truth is, ethical standards are seen as more important than making a profit (by most companies).  Reason being, ethics demonstrate your integrity as a company, and what your morals are.  If you don't have sound morals, you usually can't be trusted in the business world.  Just because a company turns a constant profit, does not mean they are doing it ethically.

An article I came across titled, "Defining 'business ethics': Like nailing jello to a wall" demonstrated the importance of ethics in our corporate culture today.  The article first starts off by pointing out that the concept of ethics was first developed through religious, cultural, and philosophical beliefs.  Corporate ethics are a much newer branch of traditional ethics, and have been developed in modern day.

The article made two main points about ethics that I thought were worth mentioning:

1. One's business ethics cannot be separated from his/her own personal ethics. (Lewis, 1985)
2. A business will never be anymore ethical than the people who are in the business. (Lewis, 1985)

I completely agree with both of these points.  There's really no way to separate your personal ethics when you come into the corporate environment.  Your personal beliefs begin to factor into what you do in any given situation at work.  I also agree with the fact that a business cannot be any more ethical than the employees that work for it.  A company can boast high ethical standards all it wants, but it means nothing if its employees don't follow through with it.

Violations of Ethics

Forbes had an interesting article on the 5 most publicized Ethics Violations by CEOs.  The violations were:

1. Enron (Kenneth Lay)- Enron’s downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time. It not only bankrupted the company but also destroyed Arthur Andersen, one of the largest audit firms in the world.The charges related to knowingly manipulating accounting rules and masking the enormous losses and liabilities of the company. Lay and Skilling were tried together on 46 counts, including money laundering, bank fraud, insider trading and conspiracy. Skilling was convicted on 19 counts and sentenced to over 24 years in prison. (Forbes, 2013)
2. WorldCom (Bernard Ebbers)- As the SEC was conducting its investigation of Enron, an even larger CEO ethics violation was brewing. WorldCom, which at the time was the United States‘ second-largest long-distance telecommunications company, entered into merger discussions with Sprint. The merger was ultimately dashed by the Department of Justice over concerns about it creating a virtual monopoly. The situation took its toll on the company’s stock price. CEO Bernard Ebbers owned hundreds of millions of dollars in WorldCom stock, which he margined to invest in other business ventures. As the stock price dropped, banks began demanding that Ebbers cover more than $400 million in margin calls. Ebbers convinced the board to lend him the money so that he would not have to sell substantial blocks of stock. He also began an aggressive campaign to prop up the stock price by creating outright fraudulent accounting entries. WorldCom’s internal audit department ultimately discovered the fraud, and the audit committee was informed. The resulting SEC investigation resulted in the company’s bankruptcy filing in 2002 and the conviction of Ebbers on fraud, conspiracy and filing false documents charges. Ebbers began a 25-year sentence in federal prison in 2006.(Forbes, 2013)
3. (Conrad Black)Hollinger International- Canadian Conrad Black created Hollinger Inc., the parent company of Hollinger International, in the mid-1980s with the purchase of the controlling interest in the Daily Telegraph. With a number of other purchases throughout the following 15 years, Hollinger became one of the largest media groups in the world. As CEO of Hollinger International, Black had substantial control over the company’s finances.  The board of directors confronted Black in 2003 over payments the company made to him and four other directors in the $200 million range. The board called in the SEC to investigate the validity of the payments and the accounting transactions created to account for them. Charges were laid against Black for fraud, tax evasion and racketeering, among others. In 2007, Black was convicted of four of the 13 charges against him and was sentenced to 78 months in prison, of which he served 42. He was released from prison in 2012. (Read More: The Uneven Consequences Of Corporate Misbehavior) (Forbes, 2013)
4. Tyco (Dennis Kozlowski)- Kozlowski, the CEO of Tyco, a massive security and electronics company, was also caught with his hand in the corporate coffers. In 2002, the board of directors discovered that Kozlowski and Mark Schwartz, the company’s CFO, had taken unauthorized bonuses and loans in the amount of $600 million. The men were brought up on charges of grand larceny and securities fraud, among others. Kozlowski had paid for lavish parties, a Manhattan address and expensive jewelry with corporate funds. His first trial in 2004 resulted in a mistrial, but in 2005 he was sentenced to between eight and 25 years. (Forbes, 2013)
5. Yahoo (Scott Thompson)- Compared with the other four infamous CEO bad boys on the list, Scott Thompson’s transgressions may not seem so egregious. What shocked shareholders and media alike was the brazenness of his deception and the lack of oversight that allowed it to happen. Thompson was brought in as Yahoo’s new CEO in early 2012, in an attempt to reverse the struggling company’s fortunes. By May, a shareholder activist group alleged that Thompson had embellished his resume by claiming he had a degree in computer science, along with an accounting degree. He has only an accounting degree.  There are two significant ramifications of the deception, which Thompson characterized as “inadvertent.” The first is that it means the board did not fully vet him before hiring. More importantly, because the false information appeared in SEC filings, the company and Thompson himself may face disciplinary or legal action. Thompson voluntarily stepped down as CEO in May. (Forbes, 2013)

These 5 examples are just a few of the many ethical scandals that have occurred in the past decade.  Accounts of racketeering, insider trading, bribery, and fraud all occur on a daily basis in corporate America.

Takeaways from this subject

What is the main point of learning about ethics?  That’s simple.  Ethics define who we are as people.  They are used not only in the work environment, but in our everyday lives as well.  Ethics also correlate with integrity.  Without integrity, it’s hard for other people to trust you.  By my own definition, integrity is doing the right thing when no one else is looking. 

How can students of ORG331 apply this information today?

Students need to know the consequences of unethical behavior.  As I have stated in my other posts, most students will be new to corporate America.  After graduation, they might not know the common practices of companies.  They need to know the risks of using unethical behavior, because there’s always people that try to get away with  one thing or another.  They also need to know why ethics are important to a company in general.

& Cochran, P. L. (1999). Corporate ethics practices in the mid-1990's: An empirical study of the Fortune 1000. Journal of Business Ethics, 18(3), 283-294.
References

Forbes (2013). 5 Most Publicized Ethics Violations by CEOs. [ONLINE] Available at: http://www.forbes.com/sites/investopedia/2013/02/05/5-most-publicized-ethics-violations-by-ceos/.

Lewis, P. V. (1985). Defining ‘business ethics’: Like nailing jello to a wall. Journal of Business Ethics, 4(5), 377-383.