EGPA Annual Conference Ljubljana (Slovenia) 1.-4.9.2004 Study Group 7: Ethics and Integrity of Governance

PUBLIC OR PRIVATE: THE 'GREY' AREA OF ETHICS CONSIDERED

Is management ethics changing in the light of the value di- mensions of responsibility, transparency, and performance?

Professor Ari Salminen, [email protected]

Senior researcher Olli-Pekka Viinamäki, [email protected]

Faculty of Public Administration, University of Vaasa P.O. Box 700, FIN-65101 VAASA, Finland. 1

TABLE OF CONTENTS Page

I Introduction 1

II Ethical change 4 1. From agency to company 4 2. Public, private and 'grey' ethics 6

III Implications of value dimensions 9 1. Responsibility 9 2. Transparency 13 3. Performance 15

IV Conclusions 19

Sources 21

I Introduction

The presentation deals with the so-called 'grey' area of ethics. In the study, manage- ment ethics is analyzed through the selected forms of organization and through the selected value dimensions. The analysis is descriptive and qualitative in nature.

Background. Public sector reforms of various Western countries—including Finland—have changed the status of public sector organizations. One of the striking features has been the change from agencies to semiprivate corporations or privatized companies. This has contributed to reforms blurring the traditional boundary between the public and private sectors.

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In the reform process of the state, one of the politically shared aims has been to de- crease the significance of public sector in the production of services and ‘to create government that works better and costs less’. Moreover, in the public management framework, the reform processes have covered different management reform strate- gies carried out by different governments. This has evidently affected the values and methods set for public management and the virtues to be considered in assessment of public administration. What is the role of traditional values in management and in public sector ethical discussions? Is the former public service ‘ethos’ still coherent or are these arguments rather based on general perceptions than facts?

In theoretical discussions, there exist arguments, especially among the reinventing movement (Osborne & Gaebler 1992) and the New Public Management discourse, that government should not only adopt the techniques of business management, but should also adopt the values of business (Denhardt & Denhardt 2003: 17-19; Eiken- berry & Kluver 2004: 132-135). Thus, emphasizing the values of competition, prefer- ring market mechanisms, and respecting the entrepreneurial spirit, the thoughts of the movement relies heavily on such ‘intellectual cousins’ as public choice theory, princi- pal agent theory, and transaction cost analysis (de Leon & Denhardt 2000: 94). Mana- gerial freedom to define their own ethical standards and greater freedom of action are encouraged. That follows that irregular behavior is not an ethical problem when it reflects innovation rather than misconduct. This refers to a shift away from an empha- sis on legal accountability towards private marketplace principles in assessing admin- istrative and public actions in general.

Similarly, its basic premises from which management principles and practices derive are changed. For instance, the assumption of uniformity i.e. to treat all citizens equally and to provide the same benefits and deprivations to all similarly situated people is modified in certain ways. An introduction of market-based modes of actions breaks the tradition of a civil service system and the idea that public sector organizations are governed through a formalized internal management and rule-based modes of actions. The reforms have encouraged the building of an entrepreneurial management with accountability to key customers and owners instead hierarchical accountability and answering to political decision-makers. This breaks the traditional assumption about 3 the form of connection between administration and the political system. (Peters 2003: 8-9; Morgan 2001: 171; Eikenberry and Kluver 2004: 132).)

The aim of the presentation. Our presentation concentrates on the ‘grey’ ethics1. The main idea is based on the assumption that there is a change in management ethics. The first attempt to define managerial ethics as a contextual issue is presented in Table 1. Public, mixed, and private contexts are described through different forms of organiza- tion and through basic values. The 'grey' area of ethics is more or less located in the mixed forms of organization and basic values concerned.

Table 1. Public, mixed, and private: different contexts for analyzing ethics

Forms of organization Basic values

Public Agencies, ministries, courts, local gov- Regulation, rule-based management, rule ernment and regional authorities of law, equality, public interest, loyalty to political decision-makers, neutrality

Mixed Public enterprises, public companies, Creating competition and strategies for non-profit-organizations markets, productivity, loyalty to interest groups

Private Fully privatized companies, enterprises Profitability and selling, loyalty to own- and limited companies ers, individual or strongest group inter- est, entrepreneurship

The figures show in the Finnish case, that the number of the government officials dur- ing the 1990s has decreased from 213,000 to 128,000. The creation of public enter- prises has caused the biggest change ever in the Finnish public sector in terms of the number of personnel: 80,000 state officials and employees have been removed outside the state budget economy. The next step is to turn to the public companies to which have carried out the process in the 1990s: in the beginning of the 1990s 70,000 em- ployees worked in state-owned companies while by the end of the decade, the number of employees has grown to 107,000. However, more generally speaking, issues of ‘grey’ ethics are relevant for the whole range of public administration.

1 As a term ‘grey' ethics refers here to 1) a mixture of public and private ethics, 2) a stage of transfor- mation in values, procedures and organizational forms, and 3) still unspecified or even inconsistent contents of public sector ethics. 4

The paper deals with three questions. First, what are the process and the area which explain the change of management ethics? This topic is dealt with in the next part of our presentation. Secondly, how is the change in management ethics described by the selected topics of our analysis, namely responsibility, transparency, and performance? Thirdly, what is the content of the ‘grey’ ethics? The final part is reserved for discus- sion of this issue.

II Ethical change

1. From agency to company

As we see it, the assumed change in management ethics and values will be dealt with in particular transformation process. Van Wart and Denhardt (2001: 233, 235) argue that organizational forms determine both formal and informal values in management, such as the appropriateness of profit making and the reliance on control. Thus, chang- ing an organizational form involves changing the underlying values as well, and con- versely, value changes cannot occur without accompanying structural changes.

Process. The process in concern can be described as presented in Figure 1. It is called a change from agency to company. In this process, the public sector is subjected to market influences. Our argument is that it obviously affects the management ethics and values to be considered in it. However, there are differences in ways how this process is conducted in a particular country.

Public agency

Public enterprise

Public company

Fully privatized company

Figure 1. Transformation process 5

Public agency refers to government and self-government public authorities, which are financed from state or local government budget. A public enterprise is quite a unique organization form. It has applied mostly in Nordic countries, in Finland, Sweden, and Norway. It has been developed as a form of organizing state and local government business-like operations. It is somewhere between a net-budgeted agency and a pub- lic-owned company: as an organization it has an extensive freedom of operation and at minimum, the activity should be self-supporting, but it usually have tasks of a pub- lic authority.

Public companies are limited companies and they are required to base their action on same prerequisite factors as those of private enterprises. They are transferred outside the State budget economy. There exist three kinds of companies. It can be totally pub- lic owned and the company has often a monopoly in its’ field of business. There are also partially public owned companies when state or local government has majority of shares, and companies in which public ownership is minority. In the former, state or local government actions are based on the shareholder interests. A privatized com- pany refers here to the final stage of the process; in these companies, the role of public interest is similar to all other shareholders.

The process is everywhere linked to the value and norm climate of society, power hegemonies and corresponding issues. Additionally, as Frederickson and Walling (2001: 38) note, in government administration values or virtues are most often taken to mean political or policy values. More or less practically, the process seems to be connected to several goals which are shared among most Western countries. Typically the goal is to reduce the size and significance of the public sector, increase productiv- ity, and achieve savings, decrease budget deficits, broader ownership, and to open monopoly-like sectors to competition. Though the mentioned facts are far from ethics, they present background factors for explaining the change.

Change of values. Table 2 presents some organizations acting in certain fields of business and which are undergone the process in the Finnish case. The values pre- sented in Table are based on company related documents and their declarations. The organizations employ 104,000 employees. Some of these cases will be shortly referred later. 6

Table 2. A selection of transformed Finnish organizations and their values

Organization / Branch Organizational values

Civil Aviation Administration / Safety, customer benefit, efficiency, cooperation Airport and the air navigation system maintenance

Finland Post Ltd/ Customer-orientation, reliability, development Postal services

Finnair Ltd/ Customer-orientation, honestly, openness, responsibility-taking, Air traffic fairness

Finnish Road Enterprise/ Infrastruc- Customer-orientation, trust, openness, environmental aware- ture services ness, profitability

Fortum Ltd / Business performance, creativity and innovation, co-operative Energy and oil products spirit, high ethics

Kemira Ltd Innovation, respect for individuals, working together, cost- Chemical industry effectiveness, result-orientation

Metsähallitus Ltd/ Cooperation, customer-orientation, sustainability Forestry and nature protection

Senate Properties/ Value-adding business, respect Property assets management

TeliaSonera Ltd/ Trustworthy, serviceability, improvement Telecommunication

VR-Group/ Safety, customer satisfaction, responsibility Railway traffic

2. Public, private and 'grey' ethics

Discussion. As Huberts et al (2003) note, core values of the public and business sec- tor have inspired many authors. Lundquist (1988: 168-172) defines public sector eth- ics using concepts of lawfulness, loyalty towards politicians, needs of citizens and public interest. Thompson (1992: 523-532) pays attention to the possibilities of ad- ministrative ethics. He analyses two major theoretical views: the ethic of neutrality and the ethic of structure. Vermeulen (1998: 176-179) stresses the civil servant, soci- 7 ety and citizen in quest of good ethical behavior. According to Vermeulen, the new civil servant is both manager and businessman.

Pollitt (2003: 11) analyses private sector organizations which avoid such ethical duties and where corporations display little or no 'social conscience'. In other words, profits come before principles. In the history of corruption, Tiihonen (2003: 7, 13) points out the changes in the civil service. Civil servants and employees are working in enter- prises and companies which dismiss the sharp separation between public and private sector.

On the other hand, business or private ethics can be similarly defined by using certain concepts. For example, according to Barry (2000: 24), the central values are honoring promises, respecting the rights of justly and acquired property. Ferrell et al. (2000: 61) puts emphasis on values such as trust, self-control, empathy, fairness, and truthful- ness.

Two background major issues—greed and profit—are in focus in comprehending the content and discussion on the business ethics, and in making a difference between the private and public ethics. Greed as a driving force derives from philosophical explana- tions of private ethics, like egoism, virtue ethics, and utilitarianism. To survive, busi- nesses must make a profit. Nevertheless, as Ferrell et al (2000: 6) continue, the situa- tion is not so one-folded in ethical terms; businesses must balance their desires for profits against the needs and desires of society. Furthermore, greed and profit making requires markets and competition to exist. An idea that markets functioning perfectly has faced a lot of criticism. Barry (2000: 20) argues that in analyzing ethical question, disregarding the criticism leads to superficiality and normative suggestion without a real content.

According to Ferrell’s et al. (2000: 12) analysis a trend in ethics concerning private ethics is to move away from legally based ethical initiatives to ethics that can be ap- plied and incorporated as a part of core organizational values. However, Barry (2000: 33) presents critical thoughts on the possibility of business regulating itself independ- ently of government, in the way that other professions, such as law and medicine, have through established and enforced codes of ethics. Ferrell et al. (2000) argue that 8 this in a certain way derives from the fact that ethics is practice-labeled and motivated with an idea that “good ethics makes good business sense”.

Three values. Three value dimensions for the further consideration are responsibility, transparency, and performance. These values are globally emphasized in the discus- sion on good governance and even corporate governance.

Responsibility concerns reactivity and response. Selznick (1992: 324) defines that responsibility focuses both on the social function of an institution (social responsibil- ity) and on the way in which such an institution controls its own behavior (moral re- sponsibility). Responsibility in terms of ethical values will be concretized here by asking profound questions: to whom is responsibility directed, whose interests it should serve, and what kind of responses and utilities are expected? Should the gov- ernment be responsible for all citizens or to a select group of customers?

Transparency is connected to the quality of being clear and transparent. In organiza- tional context, information is provided to interest groups of the work being performed. Transparency also implies improving democratic features in governance (Ingraham 1997: 326-327). Transparency can be viewed under two aspects in management (Reichard 1998: 129). It is a question of communication between different actors. This fosters trust among the communicating actors because social relations, power structures and decision-making, are visible. Transparency is also a technical and in- strumental topic: how to make target and procedures clear and distinct.

Performance consists of action, accomplishments, and gaining a desired outcome. However, we agree with Peters (2003: 12-13) that the assessment of public sector performance is more than of the private sector; the private-sector –related perform- ance measures may substitute relatively technical judgments and lead to simplified and hasty decisions about political choice and technical exercise. Emphasis given to technical performance criteria may be understood problematic in terms of democratic values in administration.

The schema presented in Table 3 does not claim any special privilege; there are many ways to capture the fundamental possibilities for ethical issues in management. More- 9 over, because they are all widely applied in various contexts, some specifications should be made. The ‘grey’ area of ethics is defined here by raising a question of • the sense of utility and the role of individuals • openness contra secrecy, and • diversity of setting goals for services.

Table 3. Three value dimensions of public, 'grey', and private ethics

Value Public ethics 'Grey' area of ethics Private ethics dimensions

Responsibility Citizens, social utility Sense of utility, Customers, economic role of individuals utility

Transparency Openness of processes, Openness/secrecy Unequivocal results, publicity openness towards stakeholders

Performance Inclusive services, Diversity of setting Exclusive services, equality, lawfulness goals for services result-orientation

III Implications of value dimensions

Are there any signs of the ethical change in public management? What kinds of ethi- cal challenges are related to the different stages of the above-mentioned process and three value dimensions? The first value dimension under consideration is responsibil- ity.

1. Responsibility

Table 4 is an effort to come to grips in certain way with responsibility in the selected domain.

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Table 4. Conceptions of responsibility

Values and principles Main issues

• responsiveness • seeking balance between commercial, com- • satisfaction mon welfare and authority functions • uniformity • consumerism • freedom of choice • clientele • steering

Political guidance or steered by markets? As an organization, a public enterprise has to find a balance between commercial operating principles and the implementa- tion of general socio-political tasks (i.e. employment measures, regional equality, na- ture conservation work, etc.) which the parliament has set as responsibility of the or- ganization (Salminen & Viinamäki 2001; Temmes & Moilanen 2000: 18-19).

Political guidance seeks to ensure public interests and the fulfillment of responsibility for citizens in the actions of public enterprises. The public enterprises cannot function purely according to market and customer-orientation. State enterprises use public funding which usually should be spent for societal purposes. Furthermore, the nature of their socio-political activities tend merely to be generic rather than specified or directed to concern certain groups of citizens or clients. The blurred mode of actions may cause difficulties in the creation of organization identity which may undermine the integrity and commitment to organization’s values.

However, there is always a threat when public organizations start to pursue business- like activities in addition to public duties, that profitability-seeking tasks turn out to be their primary concern. The obvious threat is the potential misuse of public power for private gains (Maravic & Reichard 2003). It has been argued that competition and separation of purchasers and providers can help to prevent ethical misfits because production and the decision-making processes have to be transparent (Osborne & Gaebler 1992).

Utility, consumers. Should the efficient functioning of the organizations mean that produced welfare is directed toward all citizens, or simply just restricted to a group of 11 stakeholders and fulfilling the needs of most paying clients? Organizations' responsi- bility is usually assessed in terms of provided services and added value to customers and interests groups, as well as, how well the services are in line with the expectations of customers, are they satisfied with the quality and availability of services, and in what ways the services and products should be developed? It is justified to ask in what ways these matters could be regarded in assessing management ethics?

Responsiveness of public organizations has traditionally been connected to ability to produce welfare services in equal and inclusive manners. Despite the fact that the in- troduction of new managerialism labeled reforms has changed the ethos of public ac- tions, the mentioned principles are strongly involved. The means of getting results is quite precise in the context of business—economic utility and selling products or ser- vices are argued to be the driving force. However, the groups and individuals which may get benefits from success are much more restricted; in other words, the gains are exclusive in nature. Instead, agencies clients are determined by norms and laws, and that’s why, responsibility have to exclusive in nature. A public agency is responsible for citizens and public companies for their key customers and owners, but public en- terprises falls between these two demands.

Turning to public companies and the process of privatization, the responsibility might become clearer. As organizations, they should operate with the same principles as private enterprises—to produce added value for their owners and their key customers. There are some reasons, why the responsibility of transformed organizations, espe- cially public companies and privatized organizations, can be defined more precisely than in the context of public administration. First of all, this derives from a possibility to determine precisely the customers and their solvency. Thus, the needs can be speci- fied and to fit the actions against them. Secondly, the question what should be pro- duced could be defined on the basis of consumerism.

However, the requirements for social responsibility tend to be much weaker and the government has limited options to enforce and affect the functioning of public com- panies and privatized organizations. Put in simple, the government has the same capa- bilities as the other owners i.e. to use voting rights in meeting of shareholders. Addi- tionally, Cooper’s (2001: 18) argument that the norms of citizenship provide the most 12 appropriate normative foundation for administrative and management ethics looses its explanatory value.

The way in which both turn into public companies and privatization affects the equal- ity and fair treatment of citizens or the availability of services could only be clarified through a longer-term assessment. Still, some effects can be briefly mentioned here. As Reichard (2002: 76) notes, the process may cause a negative distribution effect, especially in case of low-income groups. Another group is people living in sparsely populated areas: should they pay more on services which are usually more expensive because the lack of competition. This can also cause a tendency toward externalizing costs to the society.

Another point of view is that the introduction of customers and consumerism has par- tially replaced the assumption of uniformity in public services. As Peters (2003, 16) notes, this involves an ethos of differentiation rather than universalism in the relation- ship with the public. Also, customers are assumed to desire different products and have a clear idea of needed products and services, and capability of making choice among diverse competing goods. Additionally, passive consumerism may not be what reformers expect in contrast to expectations of an active, enabled and self-conscious citizens. Also, the varied functions of government do not represent uniform products or even a ‘product line’ as one encounter in business; controversially, the work of public sector is extremely diverse in the way it is performed and received (de Leon & Denhardt 2000: 96; Reichard 2002: 76) which, of course, should be regarded in terms of virtues and values.

The discussion above refers to the impact of the organizations' activities on the sur- rounding society and on the company's interest groups. Despite the process discussed, the government in the scheme of governance still has an important role in maintaining democracy and social equity. However, Milton Friedman contributed to the creation of a general corporate social responsibility theory by asking questions such as "Should companies take responsibility for social issues?" (Kok et al. 2001: 286). He argued that the only social responsibility of business is to increase profits by legal means. Additionally, there is a certain relation between consumerism and the quality of ser- vices. However, does the trend of giving a greater importance to customer choice lead 13 to serving and responding to the short-term self-interests of individuals rather than commonly accepted and prevailing values (also de Leon & Denhardt 2000: 95)?

Ownership. Traditionally, ownership has been used in terms of ensuring and respect- ing the responsibility towards citizens in the context of public administration. Through state ownership policy the government may offer services provided by public companies in rural areas, where they are not necessarily commercially profitable. More easily these kinds of obligations can be set for public enterprises. If the govern- ment completely relinquishes its share holdings in the company, the management of the enterprise through ownership policy will naturally not be possible.

Nowadays it is more difficult to find reasons for the share capital of companies being completely owned by the State. In Finland, old and traditional state-owned companies have been streamlined and put into “a saleable shape”, so to speak, because in its ownership policy the Finnish government has outlined that it does not necessarily need ownership even in areas traditionally classified as strategic.

2. Transparency

Table 5 aims to capture the essential features of transparency.

Table 5. Conceptions of transparency

Values and principles Main issues

• public trust • open competition • publicity • funding • reputation • separation of authority and business actions • procedural fairness • availability of information

Transparent process or outcome? Public actions emphasize the transparency of decision-making processes and administrative actions (i.e. ability to get information on preparation and decisions), while business-like operations tend to emphasize more the transparency of results and desired outcomes, not the processes. Transparency is realized in companies’ annual reports and press releases. The discussions worldwide 14 have concentrated on the misfits and misuses of economic (result) information in companies’ performance. A certain kind of management misfits are involved: the con- trol of top management carried out by the owners has not been functioning appropri- ately. The ethics of management has failed in setting the goals and rewards for achiev- ing results.

Openness. The public has a right to know how public institutions apply the power and resources entrusted to them. As Ormond and Löffler (2003) state, public scrutiny should be facilitated by transparent and democratic processes, oversight by the legislature, and access to information. Openness relates with control which is exercised by public opinion through civic sentiments. It has been emphasized as part of procedural fairness (the right to a trial and hearing) and public trust which are central components of good governance (Salminen, Lammi & Rautio 2003: 7-8). Both frames of reference can coexist, independent from dominance of public or business virtues. Publicity and openness are usually understood as virtues of good governance. However, there is a lot of criticism against the realization of these principles.

When business-like operations become involved, openness gains different connota- tions. The simplest implication is business secrets. Organizations do not, and have basically no obligations to be transparent with their operations and procedures; only the outcome and the result should be see-through and comprehendible.

Again, because public enterprises have the tasks of a public authority, use public funding to some extent, and are steered with political instruments, most of their ac- tions should be subjected to publicity and be open as possible. Thus, business secrecy concerns are restricted to only some of their activities—the purest business-like ac- tions.

Moving ahead in the process, openness gains same features of public relation policies as carried out in all private enterprises. The only exception here is the public compa- nies; if they have some societal duties, for example, some obligations to employ per- sons in particular area a determined period, they should inform the wider public when possible.

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Clear separated actions. A transparency of organizational actions requires that the public authority functions and business operations is separated from each other in turning from an agency or a public enterprise to public company. The most important reason for this is to ensure neutral competition and transparency of organizations' functions. The company form is deemed suitable when the organization acts in a competition situation and it has no social tasks or its activities include no exercise of public power. A limited company cannot perform any public activities unless this has been provided for by special legislation. The common practice has been to organize the activities of the authority by establishing a new public agency or by transferring these activities to another public agency.

Reputation. Public and nonprofit organizations should maintain an upright and trust- worthy reputation. This is because they have an obligation to represent the public in- terest, and therefore, they must consider not only what is legal, but also what is fair. (Eikenberry & Kluver 2004: 136.) As argued previously, one of the virtues considered in private ethics is transparency of results. Reputation evidently has wider connota- tions than in the context of public organizations; the organizations should be risk- taking and competitive positioning but fair in making contracts with other organiza- tions, it should make profits and add benefits to owners.

3. Performance

A summary of the conceptions of performance is presented in Table 6.

Table 6. Conceptions of performance

Values and Principles Main issues

• efficiency and productivity • diverse prioritized goals and qualifications • result-orientation • cutting public expenditures and reducing the • risk-taking size of organizations • operational freedom • value added • goal attainment and outcomes • empowerment

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Goal setting. In public actions the goal is set by political decision-making, and guid- ance for actions derives from politics. In business-like modes of actions, the actions taken are steered by customers and the owners and they set the goals for the organiza- tion. Is there greater efficiency because the goal can be determined in a more simple manner (what is to be provided and the pressure that results from consumer choice instead of solving diverse interests of citizens and different interests groups)?

Public enterprises works under parliamentary guidance and the parliament sets the service and operating goals for state enterprises and the Council of State or the De- partment/Ministry, under whose authority the enterprise falls, sets the results and op- erating goals. The main aim has been to allow a public enterprise extensive freedom of operation to decide on its own policies and organizational solutions. At a minimum, the activity shall be self-supporting, i.e., the principle is that the income from the ac- tivity has to cover the costs. The situation is similar with state owned companies and some of their actions may consist of socio-political targets which may relate to indus- trial, regional or employment policies as well as to environmental protection. How- ever, the goal setting is more indirect and depends the particular organizational form. For instance, in monopoly, the government has more possibilities to influence the content of the goals of the company; if the government has minority of shares, coop- eration and collaboration with other owners is required.

Competition, markets, selling, and the needs of customers are evident factors in which state companies derive their goals, such as any other private companies. Costs in- curred by the implementation of social tasks and tasks which burden its profitability are reimbursed to the organizations from the government budget or in the case of the public enterprises the resulting encumbrance is taken into account when the perform- ance goals are set. However, these socio-political goals cannot distort competition. In the case of privatization, socio-political goals can be discussed only in terms of gov- ernment ownership policy, if the government acquires the shares of the privatized company.

Flexibility and operational freedom. Managers should have the operational freedom to conduct the necessary changes. According to Van Wart and Denhardt (2001: 234) organizations are seeking greater autonomy for entrepreneurialism and decentraliza- 17 tion of decision-making. A collision of values is evident, if the organization maintains strict focus in example on rules adherence or work standardization policies, then, a well-intentioned activity may be labeled inappropriate at minimum or even unethical.

An agency bound to the government budget economy tends found the most significant issue that restricts the operational freedom and flexibility. For example, the readiness of the Finnish Forest and Park Service to react to the rapid changes in timber prices was problematic when it worked as an agency. The separation of the Park and Forest Service from the State budget was based on the grounds that it would be possible to acquire nature reserves with the sales income from land. Being bound to the govern- ment budget caused problems also in the National Board of Civil Aviation, the prede- cessor of the Finnish Civil Aviation Administration. The vigorous growth of air traffic resulted in a need to speed up investments, develop airports and increase personnel. It obtained its funds from the government budget but it could not use the income it cre- ated to cover its costs. At the same time, the poor state of the public economy made it impossible to fund the investments and the agencies could not raise funding in the capital markets.

In addition, in terms of operational freedom, even purely market-oriented perform- ance, could be restricted by legislation. For example, in Finland Amended Telecom- munications Markets Act (566/1999) emphasized the obligation of the government to ensure equal provision of telecommunications services in the whole country. To avoid negative impacts on free competition, the government established a general service fund which is used to reimburse the enterprise or company for costs incurred by the provision of the service. The other alternative is that the public enterprise providing the services in unprofitable areas can collect the costs from other enterprises operating in the sector.

Learning markets. In Finland, the separation of authority and business functions has clarified and facilitated the planning of the organizations’ strategy and operations. In the transformation process this has meant that more importance is given to eliminate unprofitable activities and that organizations would enter only into new areas with prospects of profitability. Then, there is not much room for advocacy or social efforts. 18

Eikenberry and Kluver (2004: 137) have similar findings on nonprofit organizations in the United States.

The public enterprise, as an earlier stage in turning organizations into the public com- panies has been found to be important. The public enterprise stage has provided pub- lic companies with an opportunity ‘to practice’ market-based activity, and to re- organize and adapt their operations to a commercial environment and. The customer- orientation, the service image, and making profits can be rooted in the organization.

Competition. The changes caused by the marketization follows that values consid- ered as opposite to markets (e.g. equality) has a limited capability of explaining the performance. Several studies show, however, that free competition is more significant in increasing economic effectiveness than the ownership relations of an organization (Vickers & Yarrow 1989; Boardman & Vining 1989). Thus, to discuss the perform- ance related issues in more reliable manner some specification should be regarded in terms of competition.

The Finnish public enterprise phase is used to introduce markets and foster competi- tion in a certain branch, for example in facility rent-markets or vehicle inspection. For instance, the opening of vehicle inspection operations in Finland to competition in 1994 was a concrete example of creating competition in a field that had previously been a state monopoly. This evidently encouraged an establishment of several private enterprises in the sector. Additionally, the prerequisite of a successful privatization (dismantling of a state monopoly and to open previous tightly regulated branches un- der a competitive environment) process is functional competition.

In some cases, the expansion of ownership base has been the promoter. As the reason for the privatization of Sonera (Finnish telecom-company, ancestor of Telia-Sonera Ltd.), the Ministry of Transport and Communications (1999) stated that, “a telecom- munications enterprise can best keep pace with international development if also its ownership base supports active and reformatory operations”.

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IV Conclusions

Has management ethics changed in the light of the value dimensions? Values of or- ganization are dependent from the values of the society or individuals. How to define the ‘grey’ ethics? A few conclusions can be drawn from our analysis.

First, the change in management ethics is to link it to the relationship between public and private ethics. However, this does not follow that private sector originating values should have a privilege in our explanation. Management is characterized with a seek- ing of balance between the public and private values and principles. Our analysis fo- cused on public enterprises and public companies. Despite this limited approach, many public sector—state or local—organizations, which seek such discussed values as profitability, consumerism, competitiveness etc., are very familiar with the 'grey' management ethics.

Secondly, ‘grey’ ethics is the object of confusion. What makes ‘grey’ such values as responsibility, transparency or performance? In the change, public sector organiza- tions face with the problems of balancing between commercial, common welfare and authority functions. As it concerns responsibility, the ethical codes are not always clear for public managers. New rules and procedures are required. As shown earlier, transparency slightly differs in public and private actions. In a rapid transformation process, the traditional ethical principles of public administration have been put into a complicated situation. For instance, citizens' opportunities to control public authorities and public sector functions are more limited than earlier. And, as far as it concerns freedom or competition, performance management partly follows its own paths. For example, the idea of common good might be logically excluded.

Thirdly, the ‘grey’ area of ethics is defined in Table 7, but mainly on the basis of ten- tative findings. Six core values are separated from four main management issues. Some of the values and issues are worth further considerations.

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Table 7. 'Grey' area of ethics defined

Ethics/values Management topics

• lawfulness, but loose regulation • competitive government • interest: public or individual • public or moral entrepreneurs as a challenge • loyalty: diffused of personnel policy • flexibility more than fairness • change of mentality in search for ‘core busi- • 'secrecy' approved nesses’ • selectiveness and prioritization • well-paid customers instead of users of com- prehensive public services

Public interest is more and more articulated through corporate boards of directors and through public ownership. In addition, to be responsive, it requires that in organiza- tional actions the customers are comprehended adequately, and integrated into the organizations’ value-basis, strategies, and operations.

Flexibility and fairness are required in public management. When new values are in- troduced to public managers the principles of the equal treatment of citizens (eco- nomical efficiency instead of lawfulness, business secrecy substitutes the transparency of decision processes, individually tailored services instead the standardized proce- dures, etc.) are evidently violated. In addition, the economical aspects might overtake the social welfare and societal utility in management; in that kind of pattern of ac- tions, some prioritizations have to be made.

Selectivity means that information is more and more directed to interests groups, shareholders, and key customers. The information mostly concerns the outcomes and quality of processes, not the detailed and throughout descriptions of procedures. Only the core public functions make an exception; the publicity is essential as a source for legitimization and trust.

Managers should have operational freedom such as entrepreneurs, but not act as ‘loose cannons’. The ethical codes should be apparent and clear-cut guidelines, espe- 21 cially in actions between purely public and private branches: what should be pursued; what kinds of actions are satisfactory; and, what are the limits for the risk-taking men- tality and who is responsible for setting the standards (cf. de Leon & Denhardt 2000; Hart 1984). Additionally, how far can risk-taking in terms of profit-making mentality and ‘morality bending’ serve the welfare production? Is the case the same as ethics: the ethics of the procedures is in minor role until the misfits occur?

Should concentration on the ‘core business’ (cf. e.g. Porter 1998) have more impor- tance in ethics and entrepreneurial features in the context of public sector? This is especially essential in the case of the creation of public enterprises. The separation of business-like operations from public agency facilitated the development of perform- ance of both, agency and the established public enterprise. Agency focused on regu- lating and public enterprise on providing services. Correspondingly, the ethical issues are clarified; to whom, and what actions are they responsible for, what actions should be public, and what criteria are used in assessing the performance.

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