Ethical Decision-Making

Nulli Secondus Ethical Decision- making A Practical Guide

“Ethics and corporate social responsibility are important and much debated contemporary management issues because the scale and influence of the modern organisation. Organisations’ and their managers have a real and potential impact on a wide variety of issues extending far beyond their normal business” S

N Ethical Decision-making

of 41 S

Syllabus

Learner outcomes

1. MYTHS OF ETHICAL DECISION MAKING

2. CONCEPTS OF ETHICAL DECISION MAKING

2.1 Defining ethics

2.2 Defining decision making

3. COMMON ETHICAL DILLEMAS

4. LEVELS, APPROACHES & TO ETHICAL DECISION MAKING

4.1 Levels of ethical decision making

4.2 Different approaches to ethical decision making

5. COMPREHENDING THE STANDARDS OF ETHICAL DECISION MAKING

5.1 The basics of ethical decision making

5.2 Ethical issues

6. BARRIERS TO ETHICAL DECISION MAKING

7. STEPS IN THE ETHICAL DECISION MAKING PROCESS

8. ETHICAL DECISION MAKING AND LEADERSHIP

8.1 Ethics and leadership

8.2 Ethical leaders versus unethical leaders

of 41 S

u s 8.3 Characterises of an ethical leaders

9. THE EFFECT OF ETHICAL DECISION MAKING ON BUSINESS

9.1 The impact of unethical decisions on brand and reputation

9.2 The importance of ethics in business

9.3 Difference between corporate ethics and professional ethics

9.4 Integration of ethical decision-making into the business strategy

9.5 Enhancing ethical decision making through corporate governance

9.6 The South African government departments’ efforts to promote ethical decision making

of 41 S

1. MYTHS OF ETHICAL DECISION MAKING

According to Joseph W. Weiss (2006:14-19) not everyone agrees that ethics is a relevant subject for business education or dealings. Some have argued that “ethics” is an oxymoron, or a contradiction in terms.

However certain myths persist about business ethics.

The most popular myths are presented here:

Figure 1

A myth is “a belief given uncritical acceptance by the members of a group, especially in support of existing or traditional practices and institutions”. Myths regarding the relationship between business and ethics do not represent truth but popular and unexamined notions.

Myth 1 “Ethics Is a Personal Individual Affair, Not a Public or Debatable Matter”

of 41 S

u s This myth hold that individual ethics is based on personal or religious beliefs, and that one decides what is right and wrong in the privacy of one’s conscience.

This myth is supported in part by Milton Friedman, a well-know economist who views “social responsibility”, as an expression of business ethics, to be unsuitable for business professionals to address seriously or professionally, because they are not equipped or trained to do so.

Although it is true that individuals must make moral choices in life, including business affairs, it is also true that individuals do not operate in a vacuum. Individual ethical choices are most often influenced by discussions, conversations and debates and make in group context. Individuals often rely on organisations and groups for meaning, direction, and purpose. Moreover, individuals are integral parts of organisational cultures, which have standards to govern what is acceptable. Therefore, to argue that ethics related to business issues is mainly a matter of personal or individual choice is to belittle the role organisations play in shaping and influencing member’s attitudes and behaviour.

Studies indicate that organisations that act in socially responsible way often pay penalties for unethical behaviour. In fact integrating ethics into the strategic management process is advocated (e.g., “doing well by doing good”)

Myth 2 “Business and Ethics Do Not Mix” This popular myth holds that business practices are basically amoral-not necessarily immoral –because businesses operate in a free market. This myth also asserts that management is based on scientific, rather than religious or ethical, principles.

The ethicist Richard DeGeorge has noted that the belief that business is unethical is a myth because it ignores the business involvement of all of us. Business is a human activity, not simply a scientific one and, as such, can be evaluated from a moral perspective. If everyone in business acted amorally or immorally, as a pseudoscientific notion of business would suggest, businesses would collapse.

of 41 S

Employees would openly steal from employers, employers would recklessly fire employees at will; contractors would arrogantly violate obligations; chaos would prevail.

Finally, the belief that business operate in totally “free markets” is debatable. Although the value or desirability of the concept is a “free market” is not in question, practices of certain organisations in free markets are. Mixed economies rely on some governmental policies and laws for control of deficiencies and inequalities. For example, protective laws are still required, such as those governing minimum wage, antitrust situations, layoffs from plant closings, and instances of labour exploitation. In such economies in which instances thrive, ethics is a lovely topic.

Myth 3 “Ethics in Business Is Relative” This is one of the most popular myths, and it holds that no right or wrong way of believing or acting exists. Right and wrong are in the eyes of the beholder. The claim that ethics is not based solely on absolutes has some truth to it. However, to argue that all ethics is relative contradicts everyday experience. For example, the view that because a person or society believes something to be right makes it right is problematic when examined. Many societies believed in and practiced slavery; however in contemporary individuals’ experiences, slavery is morally wrong. When individuals and organisations do business in societies that promote slavery, does that mean that the individuals and firms also must condone and practice slavery?

The question that can be asked regarding this myth is, “Relative to whom or what? And why? The logic of this ethic, which answers that question with “Relative to me, myself and my interests” as a maxim, does not promote community.

of 41 S

u s Ultimately, this logic would state that no right or wrong exists apart from and individual’s or society’s principles.

Myth 4 “Good Business Mean Good Ethics” The reasoning here is that executives and firms that maintain a good corporate image, practice fair and equitable dealings with customers and employees, and earn profits by legitimate, legal means are de facto ethical. Such firms, therefore, would not have to be concerned explicitly with ethics in the workplace. Just do a hard, fair day’s work and that has its own moral goodness and rewards.

The faulty reasoning underlying this logic is that ethics does not always provide solutions to technical business problems. Moreover, as Buchholz argued, no correlations exist between “goodness” and material success. He also argues that “excellent” companies and cooperate cultures have created concern for people in the workplace that exceeds the profit motive. In these cases, excellence seems to be related more to customer service, to maintenance of meaningful public and employer relationships, and to corporate integrity than profit motive.

The point is that ethics is not something added to business operations; it is necessary to managing successfully. A more accurate, logical statement from business experience would suggest that “good ethics means good business”. This is more in line with observations from successful companies that are ethical first and also profitable.

Finally, “What happens, then, if what should be ethically done is not the best thing for business? What happens when good ethics is not good business?

The ethical thing to do may not always be in the best interests of the company. We should promote business ethics, not because good ethics is good business, but

of 41 S

u s because we are morally required to adopt the moral point of view in all our dealings with other people-and business is no exception. In business, as in all other human endeavours, we must be prepared to pay the cost of ethical behaviour. The costs may sometimes seem high, but that is the risk we take in valuing and preserving our integrity”

Myth 5 “Information and Computing Are Amoral” This myth holds that information and computing are neither moral nor immoral but are amoral. They are in a “gray zone” a questionable are regarding ethics. Information and computing have positive dimensions, such as empowerment and enlightenment through the ubiquitous exposure to information, increased efficiency, and quick access to online global communities. It is also true that information and computing have a dark side. Information about individuals can be used as “a form of control, power, and manipulation.

The point here is to beware of the dark side: the misuse of information and computing. Ethical implications are present but veiled. Truth and accuracy must be protected and guarded: “Falsehood, inaccuracy, lying, deception, disinformation, misleading information are all vices and enemies of the Information Age, for they undermine it. Fraud, misrepresentation, and falsehood are inimical to all of them.

of 41 S

2. CONCEPTS OF ETHICAL DECISION MAKING

Ethics is often perceived as a grey area where there is little certainty about what is right or wrong. Often, a distinction is made between “ethics” and” morality”. In reality no real distinction is made between the two terms. Ethics concerns itself with what is good or right in human interaction. It revolves around three central concepts:”self”, “good” and “other”. Ethical behaviour results when one does not merely consider what is good for oneself, but also what is good for others. Smith and Cronjè (1999:490) states that all people learn values from their parents, family, teachers and their communities that they are born into. The values of individuals are expressed in attitudes, beliefs and judgements about what is right and wrong.

Ethics can be better understood if we compare it with behaviour of an individual or a group controlled by:

 Prescribed Laws

 Free choice

Smit & Cronjè (1999:490) mentions that with enforceable law, the values and standards are written into a legal system. Here behaviours of individuals and organisations are governed by the laws of the land. Examples of enforceable law would be where organisations should pay taxes and individuals should disclose when taking large sums of money out of the country. Accountability therefore is enforced by law.

They continue to explain the concept of fee choice whereby they state that “There is no law to direct the behaviour of an individual or an organisation and there is complete freedom in behaviour.” Organisations can decide whether to have a farewell party for a staff member whom is exiting the organisation and an individual decide which house he wants to buy and where. In this area individuals and

of 41 S

u s organisations are accountable only to themselves. Between enforceable law and free choice lies the area of ethics.

Decision making can be hard enough but when we consider ethics and decision making people can tie themselves up so tight that they stop making decisions

entirely. Being ethical does not always mean following the law and just because something is possible it doesn’t mean it is ethical.

2.1 Defining Ethics

Ethics is a branch of philosophy which seeks to address questions about morality; that is, about concepts like good and bad, right and wrong, justice, and virtue. According to the church of Scientology, (ethics may be defined as the actions an individual takes on himself to ensure is continued survival across the dynamics.

It is also a personal code of conduct based on respect for one’s others and your

surroundings.

Smith &Cronjè (1999:490) defines ethics as a code of moral principles and values that directs the behaviour of an individual or a

group in terms of what is right or wrong.

They go further to state that ethics

sets standards of what is good or bad

in behaviour and in decision making.

2.2 Defining Decision-Making

of 41 S

u s Decision making, also referred to as problem solving, is the process of recognizing a problem or opportunity and finding a solution to it.www.answers.com/topic/decision- making.

3. ETHICAL DILLEMAS

For HR practitioners reputation and credibility will always be important, whether as a full-time employee, and independent contractor on a fixed term contract, a tasked based service provider, or and ad-hoc provider. For some maintaining their reputations and credibility may be about providing a professional service to the employer and an ethical service to key operational service services to keep the job, hold onto the retainer, or just to get the invoice paid.

For others, the issues go way beyond professionalism. They feel that their practice extends to questions about how to behave, based on moral duties and virtues arising from principles about right and wrong. Practitioners know that things can change fast in a unionized work environment, where key service receivers also include trade unions, practitioners in related disciplines, shop stewards and industrial relations or employee relations. A complaint for any one of these or a grievance against the practitioners can lead to evidence in an internal disciplinary or grievance enquiry , an investigation or a starring role in the Commission for Conciliation Mediation and Arbitration ( CCMA) or the Labour Court.

3.1 COMMON ETHICAL DILEMMAS

Ethical issues and they get recognized, understood and managed can enhance professional reputation , personal credibility and client service or result in a disciplinary inquiry into the practitioner’s conduct as employee, or the termination of

of 41 S

u s a long term service contract. For practitioners, the way to take advantage of the benefits and to avoid the pitfall is to become ethically aware.

Many practitioners face ethical issues and over time have gained the experience and the insight to work them out in ways that have fair and moral outcomes for all. Other employed practitioners such as:

 IR and ER practitioners  Safety Health and Environment Managers  HRD and OD specialists  Remuneration and Benefits specialists  Medical services professional  In-house lawyers and corporate councils,

all have very similar ethical dilemmas

HR practitioners can encounter many ethical dilemmas. The key issue is to be able to recognize the issue as an ethical issue and then to know how to respond ethically.

The following hypothetical examples involve ethics and ethical thinking in the process of attaining a fair outcome.

Examples

1. A salary and benefit audit identifies a grading error which advantages a high performing employee but the manager instructs that the error be concealed; 2. A senior manager’s serious disciplinary offence is hushed up, while for the same misconduct, ER practitioners have instructions to institute an immediate disciplinary enquiry in the case of junior managers and the line supervisors; 3. A line manager dismisses an employee with a known terminal illness, or disability, which causes the family to lose the death benefit and leave with nothing even though the employees could have been retained until demise; 4. In a labour dispute in the High Court or CCMA, the legal representative deliberately does not call the HR practitioner as a key witness and crucial evidence is not given and an unfair outcome happens

of 41 S

u s 5. In the recruitment process: A Safety Manager places pressure on an HR practitioner to disclose confidential health status information, which is then used to justify not hiring the person; 6. The HR executive places insurance business with a specific insurer or broker in order to receive a bribe or commission for doing so 7. The employer’s Employment Equity Plan as submitted to the Department of Labour is deliberately not being followed; 8. A safety manager ignores a medical practitioners Health Risk Report , of fails to respond within a reasonable time to the key OHSA – related safety and health compliance recommendations by the doctor in it. 9. An HR Manager pressurizes the medical practitioner to declare an employee unsafe to allow the employee to be removed from their post or to dismiss or retrench them 10. An employed practitioner decides not to confront the Manager they report to, because the annual performance review cycle is coming up.

The above examples all require solutions to make the “right ethical decision”

Decisions need to be taken based on a balance between conflicting demands. Decisions need to be reached through a process of ethical thinking. What support is needed to help make tough decisions?

3.2 Red Flags

Red flags can alert diligent in responsible positions persons i.e. governing bodies, trustees, office bearers’ , directors etc, about the actual or potential presence of ethical problems.

These people would need to react if there is an ethical issue to respond to and find strategies to manage the issues to make an ethical decision.

Red Flags include the following:

 Conflicts of interest  Employee, patient, union or employer complaints  Use of assets

of 41 S

u s  Complaints about privacy and confidentiality  Pressures on productivity  Downsizing and restructuring pressures  Compensation and benefits  Lack of full disclosure  Events affecting image and reputation  Organizational culture

4.1 LEVELS OF ETHICAL DECISION MAKING

In the event of an ethical dilemma, managers find it easy to decide what course of action to take if they can identify the level at which it appears. Smit & Cronjè demonstrates in the figure 1 what most managers are confronted with in today’s’ businesses and listed them in five levels namely:

Figure 2

4.1.1 Individual level On this level ethical questions arise when people are faced with issues involving individual responsibility such as calling in sick when they are needed at home or

of 41 S

u s misusing organisational resources such as the internet, telephone and company time for personal business use.

4.1.2 Organisational level When ethical issues originates on this level type individual dealing with such an issue should consult the organisations policies, procedures and code of ethics to clarify the organisations stand of the issue. An example of such a dilemma or issue

at this level would be when a manager should overlook the unethical behaviour of a colleague on his or her level whose behaviour will benefit that of the organisation.

4.1.3 Association level Organisations usually summons the assistance of consultants such as accountants, medical practitioner or management consultant and refer their issues to these professionals. The issues they are faced with may vary from downsizing, affirmative action. These professionals can make use of his or her professional code of conduct for guidelines on conducting business ethics.

4.1.4 Societal level On a societal level many business customs are different. If one focuses societal issues and what is acceptable practice in the West, we will discover that this might not be acceptable in Asia or the Middle East. A manager at this level may consult and expert on the legal or moral codes of the country he or she is dealing with before reaching a decision on an ethical issue.

4.1.5 International level Lastly at the international level ethical issues are often muddled by a mix of cultural, political and religious values that influence decisions. An ethical issue at this level would be whether an employee should accept the organisations policy of doing

of 41 S

u s business with a government that abuses human rights such as making use of child labour.

The ethical levels discussed above can and often overlap, but it is useful to identify the level when a manager is confronted with an issue to ask the question; whose interest, values, beliefs and economic interest are at stake. Such information can often help to clarify the situation and facilitate better decision making.

4.2 Approaches to ethical decisions making Smit & Cronjè (1999:494) identified three fundamental ethical approaches that managers can use in their decision making on ethical matters when they have to choose between various options and defend difficult decisions. The following approaches may be utilised namely:

Figure 3

utilitarian approach In this approach a manager studies the effect of a particular action on the people directly influenced by it and takes a decision that will benefit the most people to the greater extent. In reaching such a decision, the manager weighs the potentially

of 41 S

u s positive results of the action against the potentially negative results of the action. If the positive outweighs the negative results, the manager taking the utilitarian approach is likely to follow through with the action with the action in question. However in this approach some people, usually the minority, might be negatively affected by this action.

4.2.2 The moral rights approach In this approach the fundamental freedom and rights of the individual cannot be taken away by another individual’s decision. Thus the ethically correct decision is one that best protects the rights of those affected by it. Some of these rights are contained on documents such as the bill of rights.

4.2.3 Social justice approach According to this approach, ethical decisions must be based on standards of equity, fairness and impartiality. When managers must decide on how costs and profits generated in organisations should be shared, the basis for ethical decisions should be rules that are fairly and impartially imposed and enforced.

From the above mentioned discussion it is clear that ethical issues can be approached many different perspectives. Managers will then ask, what is the best approach? The capitalistic goal of profit maximisation is consistent with the largest benefit for the greatest number of people and therefore the utilitarian approach is followed by many business managers. However, the current emphasis not only in South Africa but globally, on individual rights and social justice forces managers to use new approaches. The answer lies in maintaining a fine balance between various approaches, depending on the situation and the stakeholders involved.

of 41 S

5. COMPREHENDING THE STANDARDS OF ETHICAL DECISION MAKING

We ask ourselves and others, what is ethics and these are a few statements that come to mind.

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts." "I don't know what the word means."

These statements might be typical of our own. Like the first statement, many people tend to identify ethics with their feelings. However, being ethical is not a matter of following one's feelings. A person following his or her feelings may deviate from doing what is right. In fact, feelings frequently deviate from what is ethical.

An individual should not identify ethics with religion. Most religions, of course, prescribe high ethical standards. Yet if ethics were confined to religion, then ethics would apply only to religious people. But ethics applies as much to the behavior of the atheist as to that of the saint. Religion can set high ethical standards and can provide intense motivations for ethical behavior. Ethics, however, cannot be confined to religion nor is it the same as religion.

Being ethical is also not the same as following the law. The law often incorporates ethical standards to which most citizens subscribe. But laws, like feelings, can deviate from what is ethical. The apartheid laws of present-day South Africa are concrete and obvious examples of laws that deviate from what is ethical.

of 41 S

u s Finally, being ethical is not the same as doing "whatever the company accepts." In any company, most employees accept standards that are, in fact, ethical. But standards of behaviour and principle in a company can deviate from what is ethical. E.g. A recruiter does not sign terms and conditions of business with an agency but uses the candidates CV and employs the candidate directly.

Moreover, if being ethical were doing "whatever the company accepts," then to find out what is ethical, one would have to find out what the company accepts. Further, the lack of social consensus on many issues makes it impossible to equate ethics with whatever the company accepts.

What, then, is ethics? Ethics is two things. First, ethics refers to well based standards of right and wrong that prescribe what employees ought to do, usually in terms of rights, obligations, benefits to the company, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from deviating from company policy and procedure, stealing, and fraud etc. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics because they are supported by consistent and well founded reasons.

Secondly, ethics refers to the study and development of one's ethical standards. As mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to constantly examine one's standards to ensure that they are reasonable and well-founded. Ethics also means,

then, the continuous effort of studying our

own moral beliefs and our moral conduct,

and striving to ensure that we, and the

of 41 S

u s institutions we help to shape, live up to

standards that are reasonable and

solidly-based.

5.1 The Basics of Ethical Decision-making

Ethics poses questions about how we ought to act and how we should live. It asks, “According to what standards are these actions right or wrong?” It asks, “What character traits (like honesty, compassion, fairness) are necessary to live a truly human life?” It also asks “What concerns or groups do we usually minimize or ignore? And why might that be?”

5.2 Ethical issues

An ethical issue is present when a decision raises a question in a person’s mind about whether the decision is consistent with the person’s own moral standards or with the moral standards most people would accept. Such questions, for example, may include whether the decision wrongly harms people, whether the decision wrongly infringes on people’s rights, or whether the decision wrongly treats people unfairly.

of 41 S

6. BARRIERS TO ETHICAL DECISION MAKING

The following statements are common rationalizations of making unethical decisions:

 If it’s necessary, it’s ethical Employees try to justify that decisions that are “necessary” to achieve objectives are automatically ethical. This type of rationalization often leads to ends-justify-the- means reasoning and treating non-ethical decisions as morally correct as possible.

For example, beggars who steal a loaf of bread. The act in itself is unethical however the beggars might argue that it is necessary for them to survive thereby justifying the act.

 The false necessity trap Companies often overestimate the cost of doing the right thing and settle for a decision that might not be as ethical as they feel it is an easier way out. This mistake could easily lead to companies underestimating the implications of such actions. They are quickly mistaken by the myth that necessity is a fact, though as Nietzsche put it, “Necessity is an interpretation, not a fact.”

 It’s just part of the job Employees tend to separate their private life and work life and often behave differently in the two. When making unethical decisions they tend to blame it on the job or position whereas in their personal life they don’t necessarily behave in an unethical manner. People should be good people in their work or personal life. For

of 41 S

u s example, an employee might not feel bad for backstabbing a colleague in order to get a higher position but may feel bad stabbing a friend in the back in their personal life.

 It’s all for a good cause People tend to justify unethical acts by claiming that it was done for a good cause.

For example, giving a poor person a position because they feel sorry them. This act is unethical as it violates following a company’s recruitment policy. This loosens interpretation of deception, concealment, conflicts of interest, favouritism and violations of established rules and procedures.

 I was just doing it for you Employees sometimes tell white lies by withholding information from fellow colleagues. They feel that they are protecting employees by doing so to prevent them from being hurt in a professional capacity. An individual should know the truth because they have a moral right to make decisions about their own life based on accurate information that they receive regardless of whether it is harmful or not.

 I’m just fighting fire with fire

This phrase means that when an employee commits false assumptions, promise- breaking and lying or other kinds of misconduct can be justified as acceptable by being engaged in routinely.

For example, if one employee lies to another, the other employee can lie to them as well and it is justified as ethical because the employee engaged in that act in the first place and is now getting payback.

 It doesn’t hurt anyone

of 41 S

u s This phrase is often used to rationalize misconduct. The individual rationalizes the unethical decision by justifying that it doesn’t actually cause anyone harm therefore it is ok to do so. An example is to use one’s position for personal gain i.e. giving a friend a position in a company.

 Everyone’s doing it

This phrase describes employee’s justification to make unethical decisions because more than one employee performs the same action. Usually they feel that there is power in numbers. For example, a company’s policy might state that abuse of the internet usage should be avoided but because one employee abuses the internet, other employees feel that they can do the same.

 It’s ok if I don’t gain personally

This refers to the misconception that it is only unethical if an individual has personal gain from the improper action.

7. Steps in the ethical decision making process When managers have to make an ethical decision, this model would be a perfect guide to follow. Refer to figure 3

of 41 S

Fig ure 4

Step 1: Determine the facts Employees often want to make decisions based on fact which is not necessarily incorrect however these types of discussions often end up involving feelings and not facts. When you act too fast, employees tend to spend more time reworking or finding new information to make a second decision. Ask yourself the following questions:

 What do you know?  What don’t you know?  Who are the people affected by your decision?  Have they been consulted?  What are your options?  Have you reviewed your options with someone you respect?

Step 2: Determine the impact on people

of 41 S

u s If management are aware of who are affected by the decisions that are made, e.g. Employees and clients, and how they will be affected in the short and long term, this will enable them to have the capability to consult these role players and make them part of the decision making process.

Step 3: Consult your values If the company’s values are ethically aligned, and employees would like to know if their decisions are ethical, they could easily consult their company values to determine if their decisions are of an ethical nature. In this way, employees are assured of making an ethical decision as well as adhering to the company values.

Step 4: Realize there is more than one right answer It is greatly encouraged to seek out other alternatives that could also be ethically correct so as to adjust the current answer in order to come up with a better decision.

Step 5: Avoid short term for long term thinking In many organizations, senior management, when making corporate decisions, are too focused on what a company can gain in the short term rather than the benefits in the long term.

Value based decisions might not have positive effects for the company in the short term but will have positive effects in the long term.

When companies make decisions to benefit them in the short term, it is highly likely that it will turn out to be the incorrect decision in the long term.

Step 6: Select your action to be taken Once the above steps have been taken into consideration, it is time to make a decision. While the above may seem like a long winded process, in reality it does not necessarily take up much time. Due to many of the aspects of the above-mentioned steps are an intuitive process and the answers are obvious.

of 41 S

u s Once employees are rid of the politically incorrect action, and any other actions that may have gone against company values, employees can make decisions based on what is best for the company and causes the least harm.

Step 7: Be decisive but flexible

In this last step, employees begin to execute their decision knowing that there are more possibilities of information coming to the forefront and therefore, companies might have to change their course of action. Decision makers should note that decisions can always be continuously improved and they should be open to new suggestions in order to make the best ethical decision and prevent negative implications.

After looking at the above-mentioned steps, and decision makers are confronted with a difficult decision, there is a very quick test that can assist with those very difficult decisions. Ask yourself the following questions:

 Is the action legal?  Does it comply with your understanding of company values?  If you do it, will you feel bad?  How will it look in a newspaper?  If you know its wrong, do not do it.  If you are not sure, ask.  Keep asking until you get an answer.

of 41 S

8. ETHICS AND LEADERSHIP

It is believed that leaders share a number of common personality traits as well as characteristics and that leadership emerges from these traits. Ethical leadership is based on knowledge and understanding of one’s core values and on the courage to live those values in all aspects of life in service of the common good.

Ethical, values based leadership moves from the inside outwards. The outward actions, decisions and behaviours are not arbitrary but are based on the inner values which the leader holds. This inner integrity leads to a commitment to working for the common good. Therefore a leader needs to be as attentive to their inner journey as to their outward behaviour.

The best leaders will exhibit both their values and their ethics in their leadership style

of 41 S

u s and actions. Leadership ethics and values should be visible because you live them in your actions every single day. Leaders know what they value and they also recognize the importance of ethical behaviour.

If an organization's leadership has a code of conduct and ethical expectations, they become an organization joke if the leaders fail to live up to their published code. Leaders that exhibit ethical behaviour powerfully influence the actions of others. (About.Com: Human Resources – Leadership Values and Ethics)

8.2 Ethical leaders vs. Unethical leaders

According to Charles D. Kerns, leaders with strong moral values are more likely to act ethically appose to those leaders who are operating with a weak or non-existent value system. One set of values that seems to be common and universally accepted includes wisdom, self-control, justice, transcendence, kindness, and courage. When faced with challenging decisions or situations, leaders who have not internalized a value system that includes these values will probably respond with more variability than will one who has such a system. It is primarily in the situation in which the

leader does not have an internalized value system that mental gymnastics or mind games may cause an otherwise good person to make unethical decisions. According to Kenneth Blanchard and Norman Vincent Peale (1988:25), authors of The Power of Ethical Management, there are three questions leaders need to ask themselves whenever faced with an ethical dilemma.

Is it legal? - will any criminal laws be violated, civil laws or company policies by engaging in this activity?

Is it balanced? - Is it fair to all parties concerned both in the short-term as well as the long-term? Is this a win-win situation for those directly as well as indirectly involved?

Is it right? - Most of us know the difference between right and wrong, but when push comes to shove, how does this decision make you feel about yourself?

of 41 S

u s Are you proud of yourself for making this decision? Would you like others to know you made the decision you did?

8.3 Characteristics of an ethical leader Ethical Leadership is to believe that we are not in the business of surviving but in being good, and to admit to ourselves that we are good in order to survive. Ethical leadership is about knowing your core values and having the courage to live them in all parts of your life in service of the common good. These leaders posses the following characteristics: (www.linkedin.com)

 Create mechanisms of dissent Many leaders do not realise how powerful they are simply by virtue of their positions. Psychologists have demonstrated that most of the time people will obey what they perceive to be legitimate authority, even if there is no cost for disobedience. In a company that takes its purpose or values seriously, there must be mechanisms of pushing back to avoid the values becoming stale and dead. Indeed, many of the current corporate scandals could have been prevented if only there were more creative ways for people to express their dissatisfaction with the actions of some of

their leaders and others in the companies. The process of developing these mechanisms of dissent will vary by company, by leadership style, and by culture, but it is a crucial leadership task for value creation in today’s business world. For example General Electric’s famous “workout” process (where workers meet to decide how to fix problems and make the company better),was a way for front line employees to push back against the established policies and authority of management. All of these processes lead to better decisions, more engaged employees, and an increased likelihood of avoiding damaging mistakes. R. Edward Freeman and Lisa Stewart (2006:4)

 Take a charitable understanding of others’ values. Ethical leaders understand why different people make different choices, but still have a strong grasp on what they would do and why. Following twenty-seven years in prisons, Nelson Mandela was still able to see the good in his jailers. After one particularly vicious jailer was being transferred away from Robbins Island because of

of 41 S

u s Mandela’s protest and push back, the jailer turned to Mandela and stated “I just want to wish you people good luck.” Mandela interpreted this statement charitably as a sign that all people had some good within them, even those caught up in an evil system. Mandela felt that it was his responsibility to see this good in people and to try and bring it out. R. Edward Freeman and Lisa Stewart (2006:5)

Nelson Golishlashla Mandela

 Make tough calls while being imaginative

Ethical leaders inevitably have to make a lot of difficult decisions. Ethical leaders do not attempt to avoid difficult decisions by using an excuse of “I’m doing this for the business.” The ethical leader consistently unites “doing the right thing” and “doing the right thing for the business.”

The idea that “ethical leadership” is just “being nice” is far from the truth. Often, exercising “moral imagination”6 is the most important task. Mohammed Yunus founded the Grameen Bank on such moral imagination.7 By taking the standard banking practice of only lending to people with collateral, and turning it on its head, Yunus spawned an industry of micro-lending to the poor.

Mohammed Yunus The Grameen Bank’s motto

of 41 S

u s is that poverty belongs in a museum. In addition to having one of the highest loan repayment rates in the banking industry, the bank’s program of lending to poor women in Bangladesh to start businesses has helped millions of them to be able to feed themselves. R. Edward Freeman and Lisa Stewart (2006:6)

 Know the limits of the values and ethical principles they live

Ethical leaders have a keen sense of the limits of the values they live and are prepared with solid reasons to defend their chosen course of action. Problems can arise when leaders do not understand the limits of certain values.

Ethics is no different from any other part of our lives: there is no substitute for good judgment, sound advice, practical sense, and conversations with those affected by our actions. R. Edward Freeman and Lisa Stewart (2006:7)

 Frame actions in ethical terms

Ethical leaders regard their leadership as a fully ethical task. This entails taking seriously the rights claims of others, considering the effects of one’s actions on others (stakeholders) and understanding how acting or leading in a certain way will have effects on one’s character and the character of others. The ethical leader takes responsibility for using sound moral judgment. It is easy to frame actions in ethical terms and be perceived as “righteous.”

Ethical leadership requires an attitude of humility rather than righteousness. Ethics is best viewed as an open conversation about those values and issues that are most important to us and to our business. It is a continual discovery and reaffirmation of our own principles and values, and a realization that we can improve through encountering new ideas. R. Edward Freeman and Lisa Stewart (2006:7)

of 41 S

9. THE EFFECT OF ETHICAL DECISION MAKING ON THE BUSINESS

9.1 The impact of unethical decisions on business’s brand and reputation

Company’s become successful when they establish a brand which is well known and accepted by consumers. The company’s brand plays a major role in it gaining market share and thus have the competitive edge over competitors. It takes time for a brand to become a household name with consumers and be a leader in the market. Tiger Woods is or” was” a well known brand which was worth millions of dollars. It took him a few years to establish the brand. Recently due to

unethical decision making the brand was destroyed and he

lost millions of dollars in sponsorships and endorsements.

Sponsors withdraw their support as they feared

of 41 S

u s that association with the Tiger Wood’s brand

will negatively impact on their reputations. SAFM Radio talk-show host, Ntsiki Mgabadelie (Talk at nine 1050 SAFM 2010, 18 February 2010) said that a Company’s reputation is build over a period but can be destroyed within minutes. The American business mogul Warren Buffet told his workforce “I will understand when the company lose dollars because of an incorrect decision. However if the company lose its reputation as a result of unethical decision-making, expect to be dealt with ruthlessly”. (Business Talk at six SAFM 25 February 2010).

Toyota was until recently a leader in the vehicle manufacturing market (Saporito B, Toyota‘s Blown Engine, Time Magazine 24 Feb 2010). A serious of questionable manufacturing decisions caused the malfunctioning of components in different vehicle models. This resulted in the company recalling 9 million Toyota vehicles. It is estimated that the errors or questionable decisions will cost the company more than $2 billion in repairs and lost sales. The question is asked how a company who became a leading player in the vehicle manufacturing industry through delivering quality products over decades find themselves in this predicament. The answer

ultimately comes down to unethical decision making. Toyota’s management’s ambition to become the world’s No 1 auto company blurred their decision making. They made an unethical decision to ignore the American’s consumers demands for safety by sacrificing quality to cut cost.

This decision resulted in loss of lives. Moreover initially they refused to accept that there was a mechanical problem with the pedals and blamed the consumer for improperly installing the floor mats. Thereafter they blamed the US parts maker CTS Corp as the supplier of defective parts. This was later proven to be incorrect and Toyota eventually accepted responsibility. This unethical behaviour destroyed the company’s reputation for providing quality products, in a few months. This is an example of a company whom it took decades to build its reputation and due to unethical behaviour their reputation was destroyed in a matter of months.

of 41 S

u s The recent recession put the spotlight on ethical conduct and ethical decision – making in business. The recession was triggered by unethical decisions or as it is known in business circles, “creative” finance management in the financial industry in the United States of America. It is noted that banks acted lawfully but unethically. Basically banks provided credit in the form of housing loans to people who could not afford to pay back the loan (Wadee, Z. HR Future 12.2008 pg 20). Many companies closed their doors and thousands of people lost their jobs and investments during the recession. The stakeholders in company’s which includes consumers and investors experience financial losses. Brands and reputations of business and business people were damaged in the process. In view of the afore-mentioned it is clear that ethical decision-making is very important in business.

9.2 The importance of ethics in business

The events during the last ten years where there was an increase in unethical behaviour in business made management of companies aware of the importance of ethical decision-making in their organisations. The trend in business indicates that

companies who put emphasis on ethical –decision-making are successful. Hence companies or organisations who fail to pay attention to ethics in their businesses find themselves at a distinct disadvantage. (University of Pretoria, Ethics in Business and Professions October 2007). Companies who consistently include ethics in their business operations improve the market evaluation of their businesses. In the process they improve relations with stakeholders eg. their customers, staff and suppliers. A company with a reputation for conducting ethical business reap the benefits. The company attracts the best talent for their workforce and investors will not hesitate to invest in the company.

Business ethics is the foundation of good corporate governance. Good corporate governance has been identified as a way to counter the increase of corruption in South African companies and Government Departments. In an effort to eliminate

of 41 S

u s unethical behaviour and enhance ethical decision making in businesses and organisations, a seminar on corporate governance was held in Sandton Johannesburg on 4 March 2010 (Kolani Gwala, SAFM Radio, Afternoon drive talk show 5 March 2010). The importance of business ethics and the implications for businesses of new legislation pertaining to corporate governance was discussed at the afore-mentioned seminar. Two new Acts which will force companies to adhere to ethical decision-making has been developed by government. The Acts deals with the liability of the head of companies and organisations with reference to corporate governance. The Acts are due for implementation in October 2010.

The proposed new Company’s Act will place the responsibility and accountability of ethical decision making squarely on the shoulders of the Company directors. The importance of ethics in the business environment is better understood if a differentiation is made between corporate and professional ethics.

9.3 Difference between corporate ethics and professional ethics

General ethics can be divided into corporate ethics and professional ethics. Corporate ethics refers to the ethics of the organisation and it concerns the moral

aspects (values and standards of the organisation. In contrast professional ethics concerns the moral aspects (values and standards) of the individual (Verweij D. Tanercan E, Cloin, Ethical decision making in the Military Decision-Making Process http://navyweb.navy.mil.za/8080/fms/Articles/Ethical Decision .-

According to Verweijd, Tanercan E, Cloin, Ethical (2000) corporate ethics are geared towards the sound operational management of the organisation. Professional ethics on the other hand, talks to the sound personal development and sound pursuance of the profession of the individual. It is thus clear that corporate ethics and professional ethics must coincide to ensure ethical behaviour and ethical decision-making within the organisation.

The values of the organisation must be shared by the individual as he or she is the one who must implement the policy on ethics. It is then clear that in order for

of 41 S

u s corporate ethics to be effective, it must be linked to professional ethics. This will contribute to creating a culture of ethical decision-making within the organisation. If an organisation manage to create a culture of ethical decision-making in the business, it will only be effective if ethical decision-making is integrated in the business strategy.

9.4 Integration of ethical decision-making into the business strategy.

“Many Managers and leaders fail to consider the corporate culture of an organisation when developing the company strategy because they underestimate its importance” Nyoka, M. HR FUTURE. Organisational Culture and Transformation in business strategy. August 2005.

The above- excerpt indicates that in 2005 and earlier business realised that corporate culture which includes ethics should be included in the business strategy. The changing business environment put pressure on companies to constantly review their business strategies. Social-culture environment (lifestyle change) and

ecological environment (global warming) compel organisations to pay attention to ethical decision-making.

Values are the foundation of ethics and therefore ethics is an element of the organisation’s mission. Ethical decision-making is thus included in the organisation’s business strategy. The employment of the triple bottom line model in the company’s business strategy is one way how ethical decision-making can be included in the business strategy

9.5 Triple Bottom Line

According to Swilling, M. People Dynamics, March 2002, the triple bottom line refers to profit-making at the financial level. It also means doing something at a social level

of 41 S

u s and address environmental issues. The Spier Group in Stellenbosch adopted the triple bottom line approach in their business strategy Swilling said that “Spier shareholders adopted the triple bottom line approach because it was the right thing to do and it conforms to the values of the executive team”. The Spier group believes that there are financial advantages when it comes to markets, funding sources, brand building and staff motivation. Spier executed the triple bottom line business strategy as follows

 Transforming Agriculture land via land reform and conversion.  Vineyards were replanted and expanded to 88hectres  20 hectares of public land was used to establish joint venture with emerging farmers to cultivate organic vegetables  Reconstruction and sustainability  Build 700 new houses plus related community and retail facilities.  Extensive investment in ecological design and reducing the use of oil or coal.

7.6 The application of the triple bottom line

Increase corporate responsibility. It further embedded the ethical decision-making process in the formulation of the business strategy. (Swilling, M. People Dynamics. March 2002)

The integration of the ethical decision-making process in the business strategy requires a change of company’s culture. It thus means there must be a mindset change amongst the people who must execute the business strategy. The introduction of corporate governance is thus required to introduce a code of conduct conducive to ethical behaviour and ultimately ethical decision-making.

9.7 Enhancing ethical decision making through corporate governance

of 41 S

u s The prevalence of unethical behaviour in business during the last decade increased the necessity to introduce corporate governance in companies. Major companies caused major damage financial and reputation to themselves and their stakeholders through unethical decisions. Examples would be Enron, Fidentia, Premier foods and many more.

The introduction of corporate governance is meant to eliminate unethical conduct through ethical decision-making. Rainbow Chickens embarked on a process to improve corporate governance. One of the important elements of Rainbow Chickens Corporate Governance initiative is the development of a code of ethics. In terms of the 2007 CEO report the fundamental policy of the group is to conduct its business with honesty and integrity and in accordance with the highest legal and ethical standards. The company’s corporate code of conduct is the policy document which supports the code of ethics. All employees are required to comply with the policy and maintain the highest standards of conduct in all dealings. A key rule in the corporate conduct is ”The Group is committed to the highest standards of integrity in all it is dealings with its stakeholders and society at large” (Rainbow chickens CEO report 2007 9 9pg21).This implies that ethical decision-making is entrenched in the policies of the company and is applicable to the entire workforce including management.

9.8 The South African Government and government department’s efforts to promote ethical decision-making

The South African Government Departments s reputation for ethical conduct is at a low level. The government embarked on a process to eradicate unethical behaviour within the various departments. This they did by introducing the Massified Induction Programme which commenced in 2009. The programme is run in the form of workshops which are conducted in all the government departments. Attendance at the workshops is compulsory for all employees. The workshops place strong emphasis on ethical behaviour and specifically ethical decision making. (The SAMDI. Public Service Induction Course Manual). Further proof of Government’s

of 41 S

u s commitment to entrench ethical decision-making in South African Business is the proposed passing into law of the new “Company’s Act” in October 2010.

BIBLIOGRAPHY

 De Cronje, G.J. & Smith, P.J. 1999 Management Principles: A contemporary Edition for Africa

 Gildenhys, J.S.H. 1991 Ethics and the Public Sector. Cape Town – Juta & Co

 HR Future, Volume 17, Issue, 30 [August 2005]

of 41 S

u s  HR Future, Volume 25 Issue 55 [December 2008]

 http://navyweb.navy.mil.za/8080/fms/Aticals/Ethical Decision [15 March 2010

 http://www.workinfo.com/free/Download/169.htm [23 February 2010]

 Induction Course Manual, The SAMDI, Public Service

 Kerns, C.D. Business Report: Why good leaders do bad things

 Mafunisa, M. J. 2000. Public Service Ethics. Kenwyn – Juta & Co

 Peoples Dynamics, Volume 16, Issue 25 [March 2002]

 Radio Talk Show, 1050 SAFM

 Radio Talk Show, Business Talk SAFM [15 March 2010 @ 18h00]

 Radio Talk Show, SAFM Radio [5 March 2010] Rainbow Chickens, CEO Report [September 2007]

 Seminar on Corporate Governance, Sandton, Johannesburg [4 March 2010]

 Time Magazine [February 2010]

 University of Pretoria, October 2007. Ethics in Business and Professions

 Weiss, J. 2006. Business Ethics: A stakeholder & issues that management approach. 4th Ed

 www.about.com\humanresources\leadershipvaluesandethics.html [15 March 2010]