Ethics and Management in the Corporate Arena
by Michael R. Rion
A corporate marketing director worries about whether a potential sale in a South American country might implicate her company in repressive police activities. Who can she talk to? What will they say? Another manager, in personnel, is puzzled whether a proposed compensation scheme is “fair.” How does he understand what fairness means? Meanwhile, a purchasing agent for the company wonders what to do about a proposed trip to visit a vendor’s plant, all expenses paid. Does corporate policy tell him how to respond, or does he simply rely on his own judgment? In another part of the company, a recently graduated MBA interviews for a financial analyst position. She wonders whether this is the kind of company she wants to work in? What are its values and how do they fit with hers? Can she make a career here without compromising her integrity?
Everyday, in every company, decisions and questions like these arise naturally. The examples all highlight ethical dimensions of decisions that are simply part and parcel of business life. Ethical issues and questions need not be imported into an otherwise “sterile” business environment. The challenge, rather, is to provide managers like the ones in these illustrations with support, encouragement and organizational resources to recognize the issues, to assess them ethically and financially, and to make sound ethical and managerial judgments. Based on intensive experience with a corporate responsibility program at Cummins Engine Company, as well as teaching and consulting opportunities with managers from other major corporations, I want to offer some observations about the nature of management and how we can best think about meeting this challenge to strengthen ethical management in business firms.
The Manager’s Perspective
I begin with the individual manager’s situation. Too often, we discuss ethics and management as though reality were “theory driven.” That is, we know something about ethical theory and we then derive what it is that managers should know, or what rules they should follow, or what factors they should weigh, as though they had all the time in the world to explore these considerations. Our theories are critically important, and we need always to be prepared to challenge the blinders of practice with a broader perspective. It is just as critical to understand what goes on in the life of a manager day to day if we hope to influence what she does and how she thinks about the issues that confront her.
Lest this initial focus on individual managers mislead us into an individualistic reductionism of corporate behavior, first a word about corporations, and other organizations, as moral agents. Certainly, organizations are in no sense “persons,” but through individual persons in organizational roles, organizations do act purposively and reflectively without regard to particular individuals in their roles at a given time. That is, while the individuals in the roles actually do the thinking and analysis, there is no ephemeral corporate conscience or “mind.” Their analysis, reflection, and decisions are shaped profoundly, and not always consciously, by organizational structures, policies, values and culture. This organizational perspective is important to remember, but my focus here on individual managers reflects the simple fact that one critical dimension in corporate moral responsibility is the impact of the many decisions of individual managers throughout the organization every day. There is more to be said about organizational ethics than the sum total of individual actions, but these actions account for a significant dimension of corporate impact.
We can see this in both dramatic and mundane arenas. Certainly in such major issue areas as questionable payments, regulatory compliance, and product safety, the individual managers are often directly responsible for whether the corporation ends up with a reputation for integrity or a public relations and legal scandal. But there are thousands of smaller decisions that will never make the news, decisions affecting the lives and finances of many individuals and companies. Individual managers decide how best to treat a “problem” employee, how vigorously to pursue affirmative action and honest performance review, what to do for a loyal supplier when a sharp downturn hits his own business, how much disclosure to offer a customer when discussing a performance problem, and so on. All of the elements I will discuss later for strengthening ethical management owe their effectiveness in large measure to how well they shape the decisions and behavior of individual managers. If we look carefully at the circumstances in which managers typically operate, several features affecting the manager’s ability to act responsibly are evident.
The first is complexity and ambiguity. The company “stands behind its products,” but does that mean that Smith should offer a settlement beyond warranty requirements? What are the financial implications? Is it fair to other customers? Another company explicitly prohibits bribery. Does that mean that Carlson loses a major order because some goods with papers in legal order cannot get across a border without an “expediting” payment? Even with a stated company policy, managers often face uncertainty in interpreting the policy in particular cases.
This is, of course, nothing new. The purpose of management roles, and of managers with good judgment, is precisely to move from overall corporate objectives and policies to particular decisions and actions. Ability to work with complexity and to accept ambiguity often separates a successful, rising manager from one who “plateaus” at a particular level of responsibility. The point here is simply that this complexity and ambiguity pertains to the ethical dimensions of management decisions as well. It is perfectly appropriate for an ethicist or a senior manager to articulate a principle — such as being honest with customers — and to acknowledge that tough cases will arise. The manager who has to decide what, exactly, to tell today’s customer, right now, lives those tough cases. She is the “practitioner” of ethics, for good or ill.
A second aspect of management is that managerial decisions typically constitute a flow of interrelated decisions rather than an ordered set of single decisions to be resolved serially. In the course of planning a production run, developing a marketing and sales strategy for a particular customer, purchasing goods and services needed to meet a production schedule, assessing the social-political climate in a foreign investment, or training, developing and deploying personnel, the elements in the manager’s world simply do not hold still. Events change, opportunities become contingent upon other opportunities and actors, one decision closes off some options and opens others.
What degree of product information regarding a competitor’s product is ethically responsible, for instance, when the customer changes her own strategy during the negotiations and the competitor presents a new marketing angle? Certainly many actions are unethical regardless of the circumstances, and many responsible actions are generally applicable, but the grey areas are broad and attributable, in part, to this characteristic flow in the decision process.
While managerial decisions flow in a complex and interrelated fashion, the manager is also faced with the rapidity of the decision process and the necessity to act. Individual managers typically handle this complex flow with quick decisions. There are simply too many simultaneous issues and demands on her time to allow for deliberative consideration in every case. Indeed, a critical skill for managers is precisely the ability to know when to stop the process for careful deliberation because they simply cannot stop it every time. The manager who slows down the process too often will miss the opportunity to decide in many cases, and ultimately fail to carry out the managerial task.
Those of us in academic and staff roles may have some difficulty imagining just how real is this rapidity. Practically, it means deciding what fair treatment to a customer or supplier means in a quick telephone discussion while another call is on hold and two people are waiting at the door with other important issues to discuss. It means determining responsible foreign business conduct in the midst of a complex negotiating session in another country where delay means losing the business. For many managers — especially successful managers with broad responsibility — it means dealing with these and other issues in the midst of a schedule and range of decisions that simply, humanly does not allow for slow deliberation for any but the exceptional issue. Strengthening the manager’s eye for the exceptional issue and helping him to shape the normal business style ethically is a central part of the challenge to business ethics.
Finally, it is my experience that individual managers experience a strong sense of accountability and responsibility for their decisions and actions. Stereotypes of bureaucratic buckpassing notwithstanding, managers typically recognize their own accountability within the system and accept responsibility for their actions. To be sure, there are many opportunities and temptations to “pass the buck,” to make a decision and absolve oneself of responsibility on the theory that the corporate policy or circumstance allows no other choice. Managers are human and thus susceptible to these excuses and rationalizations. Because they are human, they are keenly aware of their own role and responsibility.
This awareness can lead to genuine and positive interest in ethical management. It can also lead simply to an uncomfortable conscience and a lingering anxiety beneath the daily flow of decisions. It may lead to a quite conscious narrowing of the sense of responsibility. Precisely because I recognize and accept that I am accountable for my actions, I may look for ways to limit that accountability by, for instance, never acting without clear corporate policy or precedent. Any, indeed all, of these reactions characterize managers in any given company. My observation is simply that these all flow from a recognition and acceptance of one’s own accountability, not a denial of it.
I have drawn for you what I think is an accurate picture of management from the perspective of most corporate managers at various levels in their organizations. Typically well paid and eager to perform, these men and women have accepted responsibility for managing a rapid flow of complex and often ambiguous decisions across a whole range of corporate activity. How do we encourage and sustain ethical sensitivities and commitments in this kind of world?
Certainly a basic requisite is simply good management itself. Many examples of ethical problems in management arise from a failure to plan effectively or an inflexibility unsuited to the flow of decisions I have described. Poor decisions now may eliminate options or pose unacceptable tradeoffs down the road that could have been avoided with better management in the first place. Furthermore, good management considerations will often be consistent with ethical precepts, as for instance, treating employees with respect or being a trustworthy supplier. Management, in the context I have described, is best when it is anticipatory and affirmative, coordinating resources to meet changing circumstances, anticipating possible competing claims and dilemmas while there is still time for choice. Without that kind of good management, ethical management will be even more difficult than it already is. Given good management, however, there are separate and distinctive features of managerial judgment essential to making ethical decisions. Closely linked to participatory management is the importance of creative moral imagination — the capacity simply to recognize ethical issues, to rise above too restricted
Managers, then, need appropriate conceptual “handles” to analyze ethical dimensions of an issue. Just as the manager has concepts and rules of thumb to assess return on investment, market target volumes, or when to close a negotiation, so she needs help in knowing whether fairness is the right category for a particular decision, whether an alleged bribe really is a bribe, and so on. Managers need familiarity with these concepts to bring them to bear easily in their dynamic world. Furthermore, managers need to develop the capacity with ethical issues to reach judgments, to resolve the issue, or to know when to slow down the process for further analysis and reflection. Moreover, managers increasingly need the ability to articulate their ethical reasoning in order to explain and to defend their decisions to peers and supervisors, to the public perhaps, and — most importantly — to themselves. Given their sense of accountability and responsibility, many managers are particularly open to learning about ethics to gain more confidence that they are exercising their roles responsibly. That confidence comes finally from a sense of personal integrity and the ability to convince oneself of the rightness of one’s actions.
What is required for the manager to enable effective and ethical business performance is dynamic anticipatory management, enriched by moral imagination and the capacity to assess and resolve ethical issues within the complex flow of daily decision making. This is what policies, structures, and training programs are designed to encourage and sustain. Before I say something about those sustaining structures, let’s explore further the manager’s perspective in a few areas to see how ethics comes to bear.
Although it is always presumptuous — and perhaps misleading — to catalogue issues, there are three issue areas that arise most frequently in the management settings I am familiar with. These are:
1. The nature and extent of role responsibility — that is, I know something may be wrong here, but is it my job to worry about it?
2. The meaning of fairness — is what I don’t like unfair; is fairness equal treatment?
3. The range and limits of moral responsibility in other cultures — do I pay the bribe or not; is it a bribe; are we imposing our values on other countries?
I offer these as examples of real dilemmas that real managers worry about because they arise while they go about their regular work in the context I described earlier. I want to offer some brief reflections on each of them to stimulate your thinking about ethics in the corporate arena.
Philosophers often begin reflections on business ethics with the classical distinctions between utilitarian and deontological ethics, perhaps with some interesting twists added to the familiar dichotomy. Will cost/benefit assessment lead me in one direction on this issue, while commitment to formal principles requires something else? In my experience of consulting with and teaching ethics to managers, I’m convinced this is the wrong starting point. The first question the manager often asks is, “Do I have a responsibility here, or is this somebody else’s problem?” For example, “I’ve done a lot for this troubled employee; shouldn’t his family or a social service agency take over?” “We make the product to quality specs, is it really any of our business how the customer uses it?”
Claims are made upon the manager all the time by various stakeholders, and a critical issue is sorting out those claims to determine which ones really belong on the manager’s lap instead of somewhere else. For this reason, I prefer to begin developing conceptual resources for ethics in management with a simple role responsibility framework. Let me summarize the central concepts.
We begin with a recognition of multiple stakeholders to whom the corporation has responsibilities. In the course of doing its normal business, every company affects stockholders, employees, suppliers, customers, public agencies, local communities, and so on. All of these have a legitimate stake in certain actions of the company, they are stakeholders. Now, not all of their claims for response from the company are legitimate, nor can most companies fully meet all the legitimate claims of its many stakeholders because these claims sometimes conflict. The first point is simply to recognize that business has a responsibility for its impact on all its stakeholders.
We can further understand this responsibility by considering a simple distinction between negative and affirmative responsibilities. Simply put, the responsibility not to harm others is more stringent than the responsibility positively to help others. The essential moral minimum to avoid harm is virtually universal. Consider an encounter with a beggar on the streets of a major city. Some of us would give her money, others would not. Perhaps a few of us might even assist her to the nearest soup kitchen or even take her home to give her support. There are lots of good things we might do for the beggar, and many reasons why one of us would do one thing, and another a different response. Whatever, we would all agree that we ought not intentionally to knock the beggar down, and if, indeed, we accidentally do so, we ought to help her up.
This homely example applies to business as well as individual responsibility. Every business, in the course of its doing its routine work, affects people all the time, and like the individual, business corporations are obliged to avoid harm to those with whom they come into contact and to compensate for harm they do cause. This sounds passive, but in fact it requires imaginative proactive management in the corporate context where decisions and actions flow quickly and impacts for good or ill occur all the time. Potential for harm in the business context includes actual material injury, restriction of basic rights and freedoms, and violation of basic ethical principles.
This simple point about more responsibility for avoiding and correcting injury offers managers a helpful framework for assessing their role responsibility. It suggests a way to sort out whether a particular problem is legitimately on the manager’s desk. “Did I cause the problem? Am I doing all I can to conduct this operation in ways that do not injure the affected stakeholders?”
If, for instance, an employee with a history of personal problems that negatively affect work performance asks for another chance, the manager needs to assess whether the company has contributed to the person’s problems, whether the manager herself has made commitments, how fairly and consistently company policies are being followed in similar cases, and so on. Consider the plant manager in a small community where community leaders are asking for greater leadership and financial commitment from the company in resolving a pressing community need. There may be good reasons for the company to do more, but the manager must assess the direct impact of its business activities on its many stakeholders — including its direct impact on the community — before launching into other projects that reach beyond the boundaries of the company. Issues of cost/benefit calculation arise, as do the meaning of such key principles as truth telling, promise keeping, and fairness. But it useful to begin with the role responsibility question as the avenue into these substantive principles. That is how the questions typically arise for managers.
One of these questions that frequently arises concerns fairness. I can think of no other ethical term that more quickly leaps to managers’ tongues in the corporate arena, or for that matter, among people generally. We are quick to sense inequities and cry foul, to suggest that certain decisions are not fair. Certainly in corporate management, one hears of fairness across the range of business activity: a shop floor employee figures that his wages are not fair when he reads about the bonuses for senior officers, a marketing persons worries whether differential treatment for two different customers is really fair, a product engineer chafes under government-directed design parameters which he thinks are unfair, a community group believes the company is unfair in its distribution criteria for philanthropic dollars.
Here is where careful moral reasoning can make contributions to management ethics. The manager may be clear about role responsibility, but what sometimes happens next is a kind of paralysis stemming from the power of moral language. Fairness is such a loaded term that the manager may too quickly identify a particular meaning — typically, identical treatment — with the moral force of the concept and find it difficult to move forward because that particular meaning does not work well in the case at hand. Different participants in the case have different views of what is fair, and they accuse one another of unfairness.
Some clear thinking helps here. The essence of fair treatment is treating like things alike. On that we typically agree, but the difficulty lies in determining which categories are relevant. Disagreements about fairness are disagreements about what constitute relevant differences. In distributing votes, for instance, we say that only a few differences are relevant, such as age and legal status. When we provide salary and promotions, we do not use the same standard. It would be unfair, we say, to pay everyone the same. Relevant differences in compensation include such job related factors as contribution and productivity. In both cases — compensation and votes — we determine what are relevant differences by looking to the nature of the good that is being distributed. In Michael Walzer’s felicitous phrase, we look to the particular sphere of justice, to the particular relationships and goods that are at stake in a particular distribution.
Thus, if a compensation system provides profit-linked bonuses for higher level managers on the theory that their performance more directly effects profits than does that of lower level employees, then the same difference is relevant when profits are down and salaries have to be cut. The higher level managers ought to bear a larger burden. Better yet, perhaps the company begins to assess its assumptions and determines that all employees contribute sufficiently to profits that there are no relevant differences apart from those reflected in basic salary scales. Then, as many companies are doing, they might turn to a profit-sharing system for all employees.
Reasonable people will disagree in tough cases about what constitute relevant differences. How much should potential be considered, apart from actual performance, in compensation rewards? To take a critical controversy at the moment, are salary-based market considerations that cause women in jobs of demonstrably comparable worth to be paid less than men relevant to a particular company’s compensation system or not? Clearer thinking about fairness will not magically yield agreeable solutions every time. But it will provide a better framework for sorting out specific challenges in management and contribute to more thoughtful resolution of confusions and conflicts about management responsibility.
Even more complicated challenges for managers emerge when American businesses go overseas. Issues of bribery, safety standards, employment policies, and host country politics raise constant questions about whether and how we can operate abroad with faithful commitment to our own ethical standards.
It is important, first, not to overestimate the differences between cultures. We are too quick to note the prevalence of bribery, for instance, as a reason for participating in it, while ignoring the fact that a visitor to this country might make the same judgment about tax obligations. Cross-cultural research suggests that virtually every culture has certain common moral concepts — such as not harming others and keeping promises — rooted in social cooperation. But these deeply rooted common themes end up in different specific interpretations because cultures differ in fundamental orientation. Thus, for instance, two cultures may both affirm respect for human persons, but one defines persons broadly while another limits the concept to members of a single tribe. Both may affirm the dignity of elderly community members, but one group understands that dignity to allow, or even require, abandoning the elderly in times of scarcity while the other abhors such treatment. At this level, there truly are cultural differences that affect ethical judgment, and reconciling the two “versions” of ethics may be impossible. This need not lead to sheer cultural relativism in management ethics, that is, to a “do as the Romans do” attitude. One reason is the common ground that does exist. Another reason concerns the notion of managerial role responsibility.
Many perceived cultural differences in ethics are actually differences in how tolerate divergence from a norm which is universally held. Judgments differ between cultures, but not because the cultures lack common values. Consider bribery, for example. We read about cases where bribery appears to be commonly accepted in other cultures. Yet, it is reasonable to conclude that nearly all countries have a prohibition against bribery. Most have laws against bribery, and public examples reveal that the society condemns bribery as a violation of public morality. In fact, bribery occurs regularly in many countries. The point is that widespread bribery in a given country -does not mean the country has different ethical values. The society simply tolerates greater divergence from a common ethical norm because of low pay in public service, longstanding patterns of corruption, or centuries old customs.
This tolerance of bribery does not result from irreconcilable relativism in ethics. When an American business person enters another culture, there is a common ground from which to approach the issue. If the American insists upon a more strict standard, he or she is not introducing an alien norm, but rather judging differently the circumstances that justify falling short of the norm. Then the charge arises that the American is “imposing” our values on the other culture. Here, it is critical to understand role responsibilities carefully. Consider the bribery question further.
When an American company refuses to make payments that might be standard acceptable practice in the host nation, is this cultural imperialism? The company is not “imposing” its values on the host country. Rather, it is saying, “Here is how we will do business. If that is not appropriate or sufficient, then we simply will not engage in business here.” As a particular American company, it has every right to govern its conduct in this way. What about a local company owned and operated independently by a national of the host country? Should the American company who works with this local firm condemn it for cooperating with local practices? Not necessarily, for this might indeed be an unfair imposition of our own values. National firms have fewer options than do foreign investors. Furthermore, there may be payments prohibited by the American company that are clearly tolerated even by the most reputable local firms. It may be best for the American company to expect the local firm to be as vigorous in upholding their own standards as the former is in its own standards. Different roles lead to distinctive responsibilities.
The issue of role responsibilities and cultural differences also arises in considering social-political issues in investments abroad. Is it appropriate to consider “American” social-political values in deciding on business with other countries? Can we make consistent judgments between, for example, sales and investments in South Africa, Chile, Russia, China, and so on? Making management decisions in this area begins with “avoid harm” framework I mentioned earlier. The American business seeks to avoid harm in its business activities abroad. As an American firm, it puts limits on its own actions and says, “Here is how we will conduct business in your country if we are to be there at all.” The host country may reply, “Then go elsewhere,” and it has that right. Some elements of this approach are relatively clear. For example, minimum standards for employee safety and compensation, honest and fair dealing with customers and governments, and specific policy areas such as bribery. These elements are most clear where they involve direct management, but the concern to avoid harm extends to the wider impact of product use and operating presence in a nation.
The general principle on these broader social-political issues is that investment and doing business in a country ought to contribute positively to economic development of host countries. To that end, negotiations with host governments and nationals seek to fulfill mutually beneficial goals. Furthermore, the more a country’s policies appear to frustrate equitable social and political development, the more carefully should the American firm evaluate whether it can avoid harm by involvement in repressive settings.
For certain “benign” products — medical supplies or food — there is a presumption in favor of involvement. Only particularly problematic political or economic circumstances could create conditions where the significance of investment would counter its positive economic impact. Other products — military equipment, strategic goods — -have a more direct bearing on the political climate, and the presumption for investment is more readily challenged.
The role responsibility of American companies, then, is to assess their impact in the host country. I would argue for some minimal criterion for assessing problematic situations along these lines. The issue comes down to an assessment of the host country dynamics, and the impact of the decision being considered. Sales to domestic commercial firms are different from military sales, license agreements are different from sales, and direct investment is different still. The point is simply that American companies legitimately have these issues on their agenda as they do business around the world, and that they have a responsibility to sort out their impacts with some care. On these, and countless other issues, managers continue day-in and day-out to face decisions and opportunities where ethical dimensions are simply baked into the overall texture of management.
Critical Elements in Management Ethics
How do we support managers in ways that encourage responsible actions and positive impact of corporate activity on people, institutions, the environment, and the fabric of community? What all of us with managerial responsibility or teaching and consulting roles struggle with is how best to encourage, sustain and strengthen that kind of behavior and impact. Too often, advocates of one particular strategy — codes of ethics, corporate trouble-shooting roles, ethics training, and so on — proceed as though that strategy were the lynchpin to bring ethics more effectively into the corporate environment. My own experience with Cummins Engine Company, as well as my observations of other settings, convinces me that a whole set of elements are essential, that they are decidedly interdependent, and that the whole effort resembles a fragile house of cards. No one element, alone, can create or sustain ethical management without all the others, and weakness in even one element can undermine the overall effort in much the way the house of cards is vulnerable without each of its supporting members.
I use the house of cards metaphor intentionally, not to suggest that business ethics is a sham, but rather to emphasize the precarious nature of ethical management. Ethics is not yet a standard dimension of managerial training, nor is a sophisticated and thorough approach to ethics a standard dimension of managerial practice. Given the pressures of managerial life, therefore, ethics is easily pushed off the agenda. For this reason, I argue that sustaining ethical management requires explicit and steadfast attention to all the elements described below. These elements can all be incorporated into any organization in ways appropriate to its culture. I will discuss each of them with special, but not exclusive, reference to Cummins Engine Company.
Corporate culture is one of the newest buzz words in contemporary management discussions, and like most buzz words, the concept highlights an important truth despite the excessive claims typically made for the latest theory. The truth here is that individual organizations do have distinctive cultures. They have distinctive patterns of interaction, values, symbols, and stories that shape an identity and image of the organization. Employees know that this culture shapes and limits their own patterns, sometimes consciously, sometimes despite themselves.
Consider Cummins as an example. It was founded in the early 1900’s by an entrepreneurial chauffeur to the local banking family in the small southern Indiana town of Columbus. Clessie Cummins’ venture into diesel engines was financed by the Irwin family, at a loss for many years. Early letters and documents make clear that one of the founding interests was to provide jobs for local young people. As the company grew under the leadership of its chairman of more than 30 years, J. Irwin Miller, this initial sense of social responsibility was strengthened at every step. The company developed a clear ethos in which ethical responsibility was explicitly affirmed and expected. It was also, incidentally, an ethos that emphasized innovation, product quality and customer service. That history has continued to shape the company’s identity and guide its decisions. Indeed, many managers explain their decision to join Cummins precisely because of its socially responsible and innovative ethos.
Notice how deeply rooted culture is in a company’s history. Each company has its own history, its own distinctive story, that has helped to shape its contemporary identity and ethos. This identity contributes to shaping individual role behavior into organizational action. Where that ethos encourages ethical management, it can be lifted up, celebrated, and reinforced. Where the culture is indifferent to ethics, or even perhaps hostile, strategies for cultural change must be an explicit part of any initiatives in management ethics. Indeed, the other four elements described below can serve as strategies to change culture, or to reinforce it, depending upon the existing ethos.
The importance of corporate culture means that those who seek to sustain ethical management must pay explicit attention to corporate history and culture. Even in a setting with a less supportive culture, there may be resources in the company’s history, or in the industry’s history and practice, that can be appealed to in shifting values within the organization. Changing a culture indifferent or hostile to ethics is difficult, but ignoring it will doom specific efforts to failure. Ignoring a positive culture is folly. It is the greatest resource management can rely upon in sustaining ethical management.
The importance of senior management commitment to ethics is virtually a platitude, but no less important for that. Conscientious chief executive officers cannot alone impose ethical management, but their initiative and support are essential. The CEO needs to be articulate, visible and firm in explaining corporate philosophy and policies, reinforcing commitment to those policies regularly, and upholding the philosophy and policy in tough cases. Symbolic cases where the CEO has supported ethics, even at a financial loss, become part of the lore in the organization and give support to middle level managers as they, in turn, seek to uphold ethical practices. Likewise, the CEO’s actions are under special scrutiny in tough cases, and even the perception that ethics have been compromised will undermine commitment to ethics lower in the organization. The CEO may not be able to impose ethics unilaterally, but if the top person is not supportive of ethics, even the most responsible organization will begin to “backslide” in its commitments.
Cummins Engine Company is an excellent example of the importance of senior management commitment. J. Irwin Miller became CEO in the early 1930’s when the company was still a small start-up operation. At the helm during the company’s rapid growth in the 1950’s and 1960’s, Miller was clear and vigorous in his insistence that business be done with high ethical standards. His personality and leadership were critical contributions to the developing ethos of the organization. The company’s current chairman, Henry B. Schacht, continues this leadership role with similarly articulate and firm commitment to ethical management.
This affirmation of top management, incidentally, ought not to be focused exclusively upon the CEO. In most major corporations, senior managers play leadership roles in their divisions akin to the role of the CEO in the whole corporation. Their role in supporting ethical management is nearly as critical as that of’ the CEO. This senior management group plays a crucial role in modeling ethical behavior as it decides central policy issues and strategic plans.
A word about so-called whistleblowing policies provides an appropriate transition from top management commitment to policy guidance. As senior managers seek to reinforce ethical management, perhaps nothing sends so powerful a message as a serious effort to hear and act upon concerns raised by responsible lower level managers. The senior manager who doesn’t want to hear quickly convinces subordinates that ethics is alright only if it does not reduce immediate profits or cause headaches for higher levels. In contrast, the executive who reinforces managers who report questionable practices, or who raise ethical concerns as part of the business analysis, can convince subordinates to risk raising questions in ambiguous situations. Clear policy commitments that encourage such question-raising are important. At the same time, senior managers need to recognize that protection of those who raise questions is not always possible. Persons may take risks of subtle reprisals if they raise certain issues. Special vigilance in encouraging the raising of ethical issues, and monitoring the protection of those who risk criticizing, is always essential.
Many companies adopt codes of ethics, and there is often a debate about whether codes will make a corporation ethical. Posed in that way, the question is not very helpful. Of course, a code will not guarantee ethical management. Policies do not automatically yield compliance. Indeed, a code without compliance may do more harm than good, but codes and policy guidance are important elements in the whole process of ethical management. General ethical principles embodied in a code serve to remind employees of the company’s commitment. This may be a brief and simple statement or a more elaborate discussion of rationale and key principles. The importance of such statements should be appreciated, but not overestimated. Without the other elements described here, an ethics code neither helps people determine what to do, nor encourages them to act ethically. On the other hand, a vigorously supportive CEO who never puts anything down on paper risks not being taken seriously.
Policies, or codes of ethics, ought also to move beyond general philosophy into particular issues where specific policy guidance can be given to managers. Often the best intentioned manager may be puzzled about the practical implication of a broad “do good, avoid harm” philosophy statement. Cummins, for example, has not only a general policy statement, but also specific policies on topics selected according to line managers’ perceptions of the need for guidance. Thus, Cummins has policies on such topics as questionable payments, political participation, meals and gifts, and defense sales. Ethics policies can fit into the framework as part of the ongoing guidance given to managers.
Cummins has long had a Corporate Responsibility Department whose function is to support ethical management throughout the organization. While an outside consultant might have been able to deliver a basic ethics workshop, it was the availability of an internal staff group that enabled more targeted workshops and combined teaching and consulting roles that emerged from the training program. Indeed, the training program served to enhance the work of the department by broadening its contacts and access in the organization.
The Cummins department has three basic functions, each of which is important to sustaining ethical management. One function is policy development and interpretation. The department provides the staff support to management in developing particular policies, takes the initiative in making policies known to employees, and assists line managers in interpreting the policies in particular cases. Secondly, the department serves as a consulting resource to managers at every level on questions of ethics in business decisions. Managers often need an outside perspective to help them think through difficult issues. This assistance ranges from a telephone conversation, or brief meeting, to long-term involvement on a project team assessing a major business decision or policy question. Finally, the department works on management development through the ethics training program.
While Cummins happens to have a Corporate Responsibility Department, other companies fulfill these functions through different staff groups. Personnel, public policy, community relations, and law departments are examples. Some organizations have an ombudsperson role to help spot problem areas and offer support to aggrieved employees. Wherever the responsibility is lodged, staff support capable of helping managers is an essential component of ethical management. Managers can and will act ethically without any help, but the staff support strengthens their ability to do so.
After all is said and done, ethical management still rests finally upon individual judgments throughout the organization. Therefore, the recruitment of ethically sensitive managers, and support for developing their ethical judgment, is a final critical element. Recruitment judgments are always complicated, but a company can be clear about its values and the interviewers can be alert to the applicant’s values in an effort to recruit managers who are committed to the same basic ethical principles as the company. Cummins Chairman Schacht once noted that a critical characteristic of new employees ought to be the “capacity for moral outrage,” that is, the willingness to raise ethical issues. Though difficult to measure in the abstract, this characteristic is symbolic of the crucial dimensions of personal character and integrity needed for ethical management.
We sometimes speak of institutionalizing management ethics — that is, building the process of ethical management into the systems, structures, and culture of an organization. If we are successful in doing so, ethical management will be sustained without depending unduly on a particular personality in the organization, or an unusual time in the company’s history and interaction with the public. The five elements outlined here are vehicles for institutionalizing ethics. As such, they contribute to shaping an ethical organization whose managers fulfill their organizational roles with ethical sensitivity. Each element is crucial and depends, in important ways, on all the other elements. The more effectively a company encompasses all of them, the stronger the foundation of ethical management. Indeed, perhaps the house of cards can become a sturdy dwelling over time.
Obstacles to Management Ethics
All that I have said speaks to the possibilities for strengthening ethical management. Lest we deceive ourselves, however, it is important to recognize the obstacles against which the elements I have described are working. Many observers and critics would cite the system itself as the most profound obstacle. How can ethics be introduced into profit-making enterprises in a capitalist system, they argue, when the system itself fosters self-interest as its “motor.” This question is an important one as we consider what forms and limits ought to guide our particular political economy. However, many of the questions of ethical management are quite similar in not-for-profit and public agencies, and this tells me that problems of ethical management stem less from the “profit motive” than from single-minded, goal-directed activity in behalf of an organization. Therefore, it is important to look at activity in the business context to identify more immediate obstacles to ethical management.
Perhaps we can see these obstacles most clearly by referring again to the characteristics of the manager’s world outlined earlier. The complexity and ambiguity of many decisions simply reflect reality. A senior executive has to decide whether current and upcoming business conditions warrant a layoff. The ethical implications are profound since many people may suffer because of her business judgment, needlessly so, if she is wrong. Yet that judgment is a most difficult one. The sheer size of many corporate organizations, the complexity of their products and communications systems, the uncertainties of information, and the rapidly changing world around the company all make it difficult for even the most conscientious manager to make good judgments every time. As one pundit put it, “For every human problem, there is a solution that is simple, neat, and wrong!” Training and staff support resources aim to help the manager, but the world is still complicated, and we human beings are a finite lot!
We encounter our finiteness in the rapid flow of management decisions and the necessity for action. In the fast-paced, goal-directed activity of management, it is difficult to focus on broader questions, to discern hidden dimensions of a decision. Even conscientious managers simply miss a lot in the flow of information across their desks. For instance, the marketing director for an overseas region may be so preoccupied with 20 different orders and negotiations on a given morning that he fails to notice an order with questionable ethical implications. The goal is to build ethical sensitivity into management so integrally that these issues emerge naturally in the same way that financial concerns arise now. For now, even the best and most responsible managers have to be reminded to raise their sights.
When we turn to managerial accountability and responsibility, we encounter another dimension of human limitation — the historically dependable tendency of human persons to overestimate our capacity to achieve the good, and to underestimate our capacity for harm. Our distinctive fallibility is not perversity, or intentionally unethical behavior. It is the problem of unintended consequences of well-intentioned actions. We see it in the innovative product that turns out to have unforeseen safety problems, or the personnel decision that solves one issue only to create new ones. Despite our best efforts, we can no more escape this human limitation in business than we can in other arenas of life.
Finally, excessive loyalty to narrowly conceived organizational goals can lead well-intentioned individuals to take actions that most persons would condemn from a broader perspective. A good example of how unfortunate such “loyalty blinders” can be is provided in a Wall Street Journal account of General Electric’s problems with price fixing, bribery, and fraud over the last several years. In each case, executives took actions that were certainly unethical, and often illegal, despite firm corporate policies on legal compliance and ethical behavior. While some of the individuals may have been intentionally unethical, it is more likely that most of them simply failed to look beyond the immediate opportunity to serve the corporation’s interests as they saw it.
Awareness of these obstacles should not be read as a counsel of despair. It is a reminder that humility is one of the virtues that ought to characterize those who seek to strengthen ethical management. Individual ethical judgment in management is critical to shaping corporate impact for good rather than ill, and it can be strengthened by the elements I have described. At the same time, we must remember how far we must travel in a given company and across industry and commerce to achieve significant improvements in ethical management. Also, we must recognize the obstacles to avoid discouragement, or premature self-satisfaction, with our efforts. Each company, and each individual with some responsibility, can start somewhere within the set of elements I have described. There is no excuse for failing to try.