|Ethics Revisited. The 1990s: an “ethical decade” or a decade of hypocrisy?
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RESEARCH PAPER SERIES: 00-6
The debate over ethics in business is back on the public and corporate agendas thanks [in part] to several recent, highly publicized scandals including the tarnished International Olympic Committee member Phil Coles and allegations of improper behaviour, including graft and corruption, during the 2000 Olympics Games bidding processes (Evans, 1999). Meanwhile in January earlier this year, Telstra used footage of a 14 year-old girl, (who incidentally drowned seconds after the film was taken) in San Antonio, Texas in a commercial that was designed to show a community minded institution throughout the 1997 Katherine floods (Simper, 1999a). And most recently, the cash for comments affair involving Australia’s highest paid broadcaster, John Laws and the Australian Bankers’ Association (ABA), is now a mounting ethical crisis in commercial radio, dragging in Law’s 2UE colleague, Alan Jones and some of Australia’s biggest companies including Ansett, Qantas, AMP (Haslem & Elliott, 1999) and Cable and Wireless Optus (Allard & Davies, 1999).
As corporate Australia once again talks ethics and morality, [see for example, Mr. Frank Cicutto, managing director of National Australia Bank and chairman of Australian Bankers’ Association, the keynote speaker at a recent seminar on “Ethics in Business”, who said of the banking industry’s role in the John Laws cash-for-spin affair, that the public had “reason to again question the morality and accountability of leading representatives of Australia’s corporate sector” (cited in Davis & Collins, 1999 p. 3)] it becomes increasingly relevant to ask questions such as: Why has business ethics entered the press and the agenda of Australian boardrooms, large and small? What is the relevance of ethics to business? What constitutes ‘ethical’ business practices? Why do ethical dilemmas arise? How can organisations encourage ‘ethical’ behaviour?
In this paper these questions are addressed. The paper begins with a brief overview of the reasons for the increasing attention to business ethics in Australia. The reasons why ethical dilemmas occur in business are described, followed by a brief discussion of some of the schools of philosophical normative ethical theory; their relevance to the business context is also assessed. A review follows of some of the ways of encouraging ethical behaviour in the corporate environment, including codes of ethics, together with a brief evaluation of their efficacy. Finally, the question is asked if the new rhetoric coming from boardrooms and captains of industry is just that-rhetoric or reality?
The Increased Focus on Ethics in Business
The increasing interest in business ethics in Australia has resulted from a number of developments. The numerous, now notorious scandals of the 1980s-itself characterised by a culture of excesses and labelled the ‘decade of greed’ (Milton-Smith, 1997; Simmons, 1996; Clark, cited in Jenison, 1997)-continuing into the 1990s involving some of Australia’s leading business entrepreneurs, including Alan Bond, (ex-Bond Corp.), Christopher Skase, (ex-Quintex) and Mr Solomon Lew, former Chairman of Coles Myer, [with its own alleged culture of corruption involving secret commissions, and kickbacks for buyers, maintenance personnel, and senior management, (Cromie, 1993)]; public officials [including Mr Jeff Kennett, Victorian Premier and the so-called Guandong share transaction (Milton-Smith, 1997)]; as well as a number of high-profile Coalition Government ministers, caught up in the travel allowances rorts affair, (Seccombe,1998) resulted in ethics and corporate behaviour becoming the focal point in media reports. And today, as we enter the new millennium, the ethical values of Australian businessmen and women continue to be of serious concern.
Consider for instance, the results of a recent survey by Roy Morgan Research, which found that the “ethics and honesty” rating for bank managers has fallen from 66 per cent to 33 per cent over the past couple of decades. In the same survey, respondents were also asked which industries were doing a poor job for Australia and replied that banks had gone from the bottom 5 per cent to the top 44 per cent in a decade. Thus banks and bankers have gone from being the most trusted and accepted members of society, to being among the least trusted and most loathed, along with journalists, radio announcers and car salespeople (Morgan, 1999 cited in Kohler, 1999).
The “economisation” of society trend-the philosophy that only what counts economically and yields profits is relevant-has also given prominence to business ethics (Enderle, 1997). In Australia in response to increased domestic and international competition, deregulation, rationalisations and mergers and acquisitions, organisations restructured, reengineered and downsized, cutting costs and improving efficiency. Management structures became flatter and the decision-making function decentralised, empowering employees at all levels to make decisions affecting themselves and their work. But what decisions should be made by top managers and what should be left for others? In an era of financial globalisation, the activities of the disgraced currency trader Nick Leeson, who single-handedly destroyed Barings Bank, is an example of just what happens when poor ethics meets the exponential effect of today’s technology (Lawson, 1997).
With good corporate citizenship now firmly established (Longstaff cited in Johnson, 1999; Longstaff cited in Macken, 1997; and Marsden cited in Thomas, 1997) and new standards of public accountability (Clark, 1997 cited in Jemison, 1997) global telecommunications and advances in information technology combined with the increased sophistication of pressure groups, ensure ethical reputations can be made or broken by the social impact a company has on communities (Marsden, 1997 cited in Thomas, 1997).
The business community has focussed its attention on ethics too. Increasingly popular is the notion that “good ethics is good for business” (Enderle, 1997; Desai & Rittenburg, 1997; Abratt, Nel & Higgs, 1992; Tsalikis & Fritzsche, 1989; Solomon & Hanson, 1985). Conversely, being unethical can also prove costly, as in the case of Exxon and the Valdez disaster; Union Carbide and the Bhopal catastrophe in India (Shrivastava, 1987); Shell Oil and its alleged environmental infringements in Nigeria (Longstaff cited in Macken, 1997; McElvoy, 1996); and BHP and its environmental negligence in Ok Tedi (Barker and Oldfield, 1999; Barker, 1995).
The mounting interest in business ethics also reflects the globalisation of big business, the formation of regional economic cooperative arrangements and trading blocks, (e.g., the North American Free Trade agreement; European Community; Asia-Pacific Economic Cooperation; Association of South East Asian Nations and Latin American Customs Union), and the internationalization of the Australian economy (Milton-Smith, 1997). As a result, Australian managers are more likely to be involved in international business in some way, and encounter ethical dilemmas from the comparatively small scale decision making experienced daily [e.g., divulging confidential information, pilfering organisation’s materials and supplies or not reporting others’ violations of organisation policies, (Jackson & Calafell Artola, 1997; Izraeli, 1988)] to the more strategic issues including bribery, environmental issues and copyright piracy (Jackson & Calafell Artola, 1997). Australian managers need to be aware that their own perception of ethical business practices may not match that of people from different cultural backgrounds (Buller, Kohls & Anderson, 1997). What one organisation considers ethical in one situation, at one time and in one culture, may not necessarily be viewed in the same light by another organisation, in the same circumstances, at another time or by another culture .
The task of distinguishing ethical conduct from unethical conduct is further complicated by the ‘grey areas’ in ethics (Tsalikis & Fritzsche, 1989), where the difference between an ethical and unethical action is not clear, creating the problem of choosing between two different but ethically correct answers. For instance does an employee aware of wrongdoing by his peers, blow the whistle on his colleagues or maintain loyalty to his workmates? The Australian concern with “mateship”, friendship and and group solidarity is well documented (Feather, 1975). As the NAB’s chief said in his keynote address at the recent Ethics in Business Series:
“You can have volumes of books and days of learned discussion on the subject of ethics and still end up with the question ‘What is the right thing to do?’” (Cicutto, 1999 cited in Bartholomeusz, 1999).
Causes of Ethical Problems In Business
The recent cash-for-comments scandal, in which the Australian Bankers Association secretly paid 1.2 million dollars to radio 2UE’s high profiler presenter John Laws to endorse banks and/or refrain from broadcasting criticisms, raised a number of issues relating to ethical behaviour. First and foremost, was the failure of some of the pillars of the Australia’s business community to use ethical standards to guide their behaviour. Second, was the conduct and subsequent lack of understanding by Laws himself-arguably Australia’s most influential broadcaster, with his morning radio programme syndicated on more than 70 stations (Cameron, Lagan & Davies 1999) and 2 million listeners across Australia (Toohey, 1999)-with respect to his conduct (Lyons, 1999).
Law’s situation is further complicated by the allegation that he approached the ABA to offer his services (Allard & Davies, 1999; O’Riordan, 1999; Lyons, 1999), a situation that has seen him the subject of at least one inquiry by the ABA (Davies, 1999; Allard & Davies, 1999). The Australian Competition and Consumer Commission (ACCC), which had earlier said it was interested in determining whether Laws, radio 2UE or the banks had engaged in misleading or deceptive conduct, has since agreed that the ABA is the appropriate body to undertake the inquiry. Similarly, the New South Wales Director of Public Prosecutions, concerned with potential breaches of Section 100A of the Crimes Act (NSW), which makes it an offence “to make unwarranted demands and to support those demands by agreeing not to communicate material about a person”, together with the House of Representatives Standing Committee on Economics, Finance and Public Administration, which was interested in why the banks appeared to be purchasing publicity instead of addressing “the real issue of equity”, have both said they will await the outcome of the ABA, before pursuing their own investigations (Kavanagh, 1999).
And what about the role of the radio 2UE’s management, including its chairman John Conde a former deputy chair of the not-for profit St James Ethics Centre (Guinness, 1999), established to promote business and professional ethics, now forced to publicize radio 2UE’s policy concerning the demarcation between advertising and editorial? (Simper, 1999b; O’Riordan, 1999)? Laws has also been quick to point out that his employer-radio 2UE-was party to the bankers association contract, and furthermore, had benefited more from the arrangement than himself (Meade, 1999; Meade, Elliott & Boreham, 1999; Lyons, 1999).
More broadly, the Law’s case has provoked a debate on media ethics including the grey area known as “advertorials”-in essence paid advertising masked by the words “special supplement” or “special event”-placed in newspapers by public relations companies, who are bound by their own code of ethics and operating on the standard that they do not pay for coverage (Cameron et al, 1999). In addition, the role of industry (self-) regulation in maintaining ethical standards has also been the subject of discussion (Opinion, 1999).
Frederick, Davis and Post (1988) identified a number of reasons why ethical problems occur in business including competitive pressures; individual values in conflict with organisational goals; managers' values and attitudes; and personal gain.
Competitive pressures in business
Managers in organizations must balance their economic obligation to the firm, the bottom-line, against moral obligations to other stakeholders including employees, customers, suppliers and local communities (Frederick et al, 1988). But focusing on the ‘bottom-line’ may be at the expense of these other groups (Vogel, 1991), and sometimes lead to unethical actions that can adversely affect an organization (Bommer, Gratto, Gravander and Tuttle, 1987).
The Commonwealth Bank for instance, despite having “serious ethical concerns about the proposal” (Murray cited in Allard & Davies, 1999, p.1) to pay John Laws 1.2 million dollars to endorse banks and/or refrain from criticising banks, succumbed to the pressure of the other members of the banker’s lobby group (Allard & Davies, 1999) fearing it would be thrown out if it failed to back the proposal. The Bank’s managing director, David Murray, has now been forced to explain the Bank’s actions amidst unrest from one of its principal stakeholders, its employees (Allard & Davies, 1999). Furthermore, from the perspective of its local community, yet another key stakeholder, the deal has been a public relations disaster (Kohler, 1999; Toohey, 1999).
This case has also highlighted the difficult conflict commercial radio must manage: balancing the goals of maximizing returns to its shareholders (which at times will entail not offending big spending advertisers) and keeping its public informed (Toohey, 1999).
Managerial values and attitudes
Managerial values and attitudes may also encourage unethical conduct (Frederick et al, 1988). A number of empirical studies (Baumhart, 1961; Carroll, 1975; Brenner & Molander, 1977; Posner & Schmidt, 1984) have consistently found that the attitudes and behaviour of one’s immediate supervisor and peers as influential factors effecting unethical decision-making. Top management emphasize and clarify appropriate ethical behaviour for subordinates, while an individual’s supervisor has the power to reward and punish acceptable and unacceptable ethical behaviour. Simply put, these actions set the organisation’s ethical ethos.
The decision by the other members of the ABA-the Commonwealth Bank’s ‘peers’-to endorse the ‘cash for comment’ proposal may be thought of as setting the standard of what was (in)appropriate behaviour. Similarly, Law’s archrival but also his colleague, Alan Jones, had similar deals [including a $2.6 million contract with Cable and Wireless Optus (Allard & Davies, 1999; Meade, 1999) and with Qantas and Ansett] to provide favourable editorial comments on air (Haslem & Elliott, 1999). Law’s employer-management at radio 2UE-as a party to the ABA contract with a financial interest in it (Meade, 1999; Meade et al, 1999) in effect, endorsed Law’s actions.
The results of the latest KPMG Australia Fraud survey raise serious questions about the ‘ethical’ culture of Australian organizations. The survey, conducted biennially, attempts to quantify both the nature and extent of fraud in Australian business. The report found that management fraud accounted for 21 per cent of overall corporate fraud (including fraud in expense accounts, conflict of interest, purchase for personal use and misappropriation of funds), while non-management employees were responsible for 57 per cent of the fraud (for example, theft of inventory or plant and misappropriation of funds). Furthermore, the corporate sector had lost more than $1.3 billion in fraud since the previous 1997 survey. From a firm perspective, the average cost of fraud had risen from $450,000 to $1.1 million. The authors of the study suggest that these figures underestimate the true cost of actual fraud. For instance, 12 percent of respondents failed to disclose the extent of losses, possibly because the figures were so large (Mann cited in Hayes, 1999).
Individual values conflict with organisational goals.
Managers may also feel that they sometimes need to compromise their personal principles to conform to organisational expectations (Frederick et al, 1988; Lincoln et al, 1982 cited in Kohut, 1994; Harris, 1990; Posner & Schmidt, 1987). Mr. David Murray, managing director of the Commonwealth Bank, has repeatedly stated that he had “serious ethical concerns about the proposal”(Murray cited in Allard & Davies, 1999, p.1) and argued strenuously against the deal, considering it both risky and unethical. Nevertheless, heconceded to the needs of the lobby group, becoming the single biggest donor (Davies, 1999).
The apparent leaking of the contract between Law’s and the ABA by one of the banks (Kohler, 1999; Lyons, 1999) suggests that someone blew the whistle on corporate wrongdoing. Similarly, in the KPMG Australia Fraud survey, whistleblowers among employees, customers, suppliers, the police and anonymous letters reported more fraud than did the (poor) internal controls (KPMG Australia Fraud Survey, 1999 cited in Hayes, 1999).
Personal financial need
Personal financial need and ignorance, incompetence, corruption or greed can also result in unethical decisions in business (Frederick et al, 1988; Brenner & Molander, 1977; Posner & Schmidt 1984). While the bankers association wanted to buy favourable editorial comment, Australia’s highest paid broadcaster (O’Riordan, 1999) and sixth on the annual BRW list of Australia’s highest paid entertainers, earning 11 million plus (Shoebridge, 1999) appears to have wanted cash (Cazalet, 1999).
Causal models of business ethics (for example, Bommer et al, 1987; Trevino, 1986; Hunt & Vitell, 1986; Ferrell & Gresham 1985) depict ethical and unethical behaviour as a consequence of a decision process, the individual and the situation in which the individual makes the decision (Brady & Hatch, 1992). While the decision making process is seen as the main determinant, internal (dispositional) factors including personality and locus of control and external (situational or contextual) factors such as the work climate, influence and actions of peers and supervisors, probability of detection, and organisational reinforcement mechanisms also influence the decision maker (Weber, 1996; Brady & Wheeler, 1996; Randall & Gibson, 1990).
Normative philosophical ethical theories in turn, have provided a number of alternative models that can be employed to guide the decision making process (McDonald & Kan, 1996). Tsalikis and Fritzsche (1989) distinguish consequential (or teleological) from non-consequential (or deontological) ethical theories: the former refers to the tendency to evaluate ethical behaviour in terms of its consequences; the latter excludes consideration of the consequences in decision-making. Instead deontological theories emphasize duties and absolute rules and standards for ethical decision making (i.e., performing one’s duty, respecting the rights of others, ensuring a fair and just solution) (Weber, 1996; Brady & Wheeler, 1996).
A teleological framework requires the decision maker to determine if the consequences of a decision are good or bad. If the consequences are good the decision is ethical; if they are bad, it’s unethical. Furthermore, if the evaluation of the consequences focuses solely on the individual (or in the case of organizations, corporate entity’s) long run interest, the ethical theory is called ethical egoism. Thus if a decision results in a greater ratio of good to bad in the long run for the individual corporate entity compared with alternatives, the decision is ethical.
On the other hand, if the assessment of consequences considers everyone involved, the theory is called utilitarianism. Utilitarianism requires the decision maker to consider the outcomes of each decision alternative, and assess the impact of these consequences on all parties concerned in order to select the one that produces the greatest good for the greatest number. This approach is also known as the cost-benefit analysis (or utility approach) because the costs and benefits of a decision are compared, in order to determine whether the overall result produces more good (or benefits) than harm (or costs).
Cavanagh, Moberg & Velasques (1981) identified three categories of ethical theories: utilitarian theories, theories of rights and theories of justice. Theories of rights and theories of justice are deontological-based ethics, emphasizing duty, rights, fairness and justice (Weber, 1996).
Theory of Rights
Under a ‘rights’ approach, the decision maker is required to respect the fundamental rights shared by all human beings (e.g., the right of free consent; the right to privacy; the right of freedom of conscience; the right of free speech; and the right of due process (Cavanagh et al, 1981). Thus an ethical decision occurs when the rights of those affected by the decision are protected or not interfered with. Conversely, denying the rights of others, or failing to protect their rights is unethical.
Theory of Justice
Under the justice approach a decision is considered ethical if it is made fairly, equitably and impartially. The decision maker is required to administer rules ‘fairly’ and ensure there is a ‘just’ distribution of the benefits and costs among all those concerned with the decision, regardless of race, age, sex, religion, ethnicity and so forth.
The distributive justice principle involves determining the equitable means by which benefits and costs should be borne by different groups. In other words, individuals who are similar in relevant aspects should be treated similarly, and individuals who differ in a relevant aspect should be treated differently in proportion to the differences between them. The procedural justice principle is concerned with developing and administering fair rules or procedures, and ensuring they are consistently and impartially enforced (Cavanagh et al, 1981).
A number of other deontological rules have also been identified which might be employed by individuals within organizations when making ethical decisions, including Kant’s ‘Categorical Imperative’ or ‘universal rule’ (or law). This prominent deontological rule states that
‘I ought never to act except in such a way that I can also will that my maxim should become universal law’.
The decision-maker is concerned with whether he or she would be willing to have others act in the same way. The only ethical courses of action are those where the action taken under the circumstances could serve as a universal law of behaviour for everyone facing the same circumstances. Thus a manager is required to search for the general principle that he or she could follow in that particular case, and which, moreover, satisfies the test that he or she could will all other managers to follow the same principle under similar circumstances.
This approach also embraces the Golden Rule, often cited as acceptable in business: ‘do unto others as you would have them do unto you’ (Tsalikis & Fritzsche, 1989). In other words, treat others the way we would want to be treated.
An alternate framework, seen as the most practical of the ethical frameworks, is the ‘light of day’ principle, also known as the TV test (McDonald & Pak, 1997). Under this approach, the most salient factor taken into consideration by the decision-making is the question, “What if this information went public?"-That is, if the decision was reported on primetime news. The decision maker is openly mindful of what might be the reaction of family, friends and associates, if the details relating to their decision were publicity revealed, receiving extensive TV coverage.
Do managers make ethical judgements using a utilitarian criteria comparing the costs and benefits of various alternatives, and choosing the option that produces the greatest good for the greatest number? Or is their foremost concern during the decision making process to ensure that the decision is made such that it is in the best interests of the individual corporation? Do managers ignore the consequences of their decision, and simply focus on whether they would be willing to have everyone else act in the same way under the same circumstances-a deontological approach? Or do they use some other framework(s) or combination of frameworks during the evaluation of ethical dilemmas? (For a comprehensive discussion of these frameworks, see McDonald & Pak, 1997).
Traditionally it has been assumed that most managers in business use a utilitarian framework when evaluating ethical dilemmas (Fritzsche & Becker, 1984; Cohen, Pant & Sharp, 1993; Clark & Jonson, 1995). McDonald and Pak (1996) suggest that the strong role economics plays in managerial decision making could explain this utilitarian disposition. Intuitively, utilitarianism may also appeal to business people because of its reliance on the balancing of costs and benefits, in order to maximize utility.
Cavanagh (1990) states that cost-benefit analysis is the dominant criteria in 90 per cent of all business decisions. If we assume that the business of business is to be profitable, and furthermore, consequences are measured by costs and benefits, it appears logical that the best ethical action is that which maximises profit (Clark & Jonson, 1995, p. 3).
However, other studies have not supported these findings (Brady & Wheeler, 1996; Glover, Bumpus, Logan & Ciesla 1997). Forrest, Cochran, Ray and Robin (1991) concluded managers preferred a deontological approach, while Murphy and Daley (1990) found transportation industry executives did not rely on any one principle (e.g., utilitarianism, justice or rights) as explanations for their decisions.
Brady and Wheeler (1996) propose that the utilitarian results may be due in part to biases in vignettes in these studies. Brady (1985) suggests that the ethical issues themselves may dictate the form of reasoning. For instance, some ethical dilemmas may demand a more deontological approach (for example, equal employment), and others a more utilitarian response, such as downsizing decisions.
Reidenbach and Robin (1988, 1990) contend that individuals do not use clearly defined normative concepts (i.e. utilitarian, rights or justice) in making ethical decisions, but mix these philosophies (i.e. use a hybrid of the philosophies) in making an ethical evaluation. Similarly, McDonald and Pak (1996) also concluded that ethical judgements are made using multiple criteria.
Following an extensive literature review (Batten, Hettihewa & Mellor 1997; Milton-Smith, 1997; Westwood & Posner, 1997; Armstrong, 1996; Small, 1995; Soutar, McNeil & Molster 1995; Armstrong & Sweeney, 1994; Armstrong, 1992; Abratt, Nel & Higgs 1992; Small, 1992; Armstrong et al., 1990), there appears to be a distinct lack of research into how or on what basis, Australian managers make ethical judgements, with the notable exception of Jackson et al, (1999b). Further research into how managers make ethical judgements (i.e., using what criteria) is warranted, as this has implications for areas such as the effectiveness of codes of conduct, ethics training and promoting ethical behaviour. For example, if the light of day framework is a salient criteria used by managers when evaluating an ethical decision, promotional material designed to encourage ethical behaviour could be designed to incorporate the theme of extensive public exposure, such as “What if you got caught?” advertisements.
Interestingly, in their study of managers from Hong Kong, Malaysia, New Zealand and Canada, McDonald and Pak (1996) noted that the light of day framework was not a significant framework used by managers in these locations. Instead duty, self-interest, utilitarianism, ‘neutralisation’ (rationalisations that deny hurt or damage), justice and categorical imperative were the more salient cognitive frameworks employed. McDonald and Pak (1996) also distinguished between what managers “indicate” (i.e., self report data) are the cognitive frameworks used (the socially desirable duty and justice responses), and what multiple regression analysis results suggests are used (self-interest and neutralisation). This too has implications for research relying on self-report data.
In one of the few empirical investigations into the structure of ethical decisions, Jackson et al(in press) found that American managers used mainly consequential criteria. Given the absence of the use of deontological criteria in American managerial decision-making, Jackson et al (in press) suggests that this raises concerns about the efficacy of the widespread use of codes of conduct by American companies as a mechanism for assuring good business practices. Australian managers were found to use both consequential and relativistic criteria, to make ethical judgments. Relativism reflects an individual’s understanding of what is acceptable to the people they most admire, their family and their culture, and influences the individual’s perception of the ethical content of a situation. Further research into ethical frameworks used by Australian managers during the decision making process is needed.
Encouraging Ethical Behaviour
A variety of methods have been suggested in order to encourage ethical conduct in business, ranging from ethics training programs, ethics committees, ethics audits, judiciary boards, internal ethics ombudsman (Soutar et al, 1995), a forum for the discussion of ethics (Batten et al. 1997) through to an ethics advisor or ethics advocate (Singleton, 1999). However, the most common response is the codes of ethics (Soutar et al, 1995; Tsalikis & Fritzsche, 1989; Merchant, 1988 cited in Batten et al, 1997). However Soutar et al, (1995) notes it is not necessarily the most commonly introduced mechanism.
Codes of Ethics
Hosmer (1987, p. 153) depicts codes as "statements of the norms and beliefs of an organization…the way that the senior people in an organisation want others to think". Fritzsche and Becker (1982) contend that a set of codes or rules should be developed that can be used as a managerial guide to conduct when faced with specific types of ethical problems. Furthermore, these rules should reflect the general values and expectations of society, and as a result the ethical behaviour of organisations should improve. Similarily, Merchant (1988 cited in Batten et al, 1997) believes that having a written code of ethics or a corporate code of conduct to be an important solution in avoiding deceptive practices.
Batten et al, (1997) conducted an Australian wide survey and found that most firms (71per cent) did not have a written code of ethics, although 37 per cent had a forum for discussion of ethics. The authors concluded that larger firms were more likely to have a written code of conduct than were smaller firms. Importantly, Batten et al (1997) contend that because of the sample size and response rate, these results are indicative of practices of Australian firms in different industries.
The Australian Institute of Management (1996, cited in Lawson, 1996) surveyed 222 large companies consisting of more than 200 employees and found that approximately two thirds had written codes of conduct. However, only 56 per cent had clear mechanisms for reporting violations of those codes; and a further 10 per cent were in the process of developing such mechanisms.
In yet another study, Wood (cited in Simons, 1996) concluded that more than one-quarter of Australia’s largest 500 companies had codes of ethics; furthermore, by 1997, the numbers of companies with codes were expected to have increased by half as much again. But while codes were increasing in number, Wood also found that comparatively few companies had any internal structures to back up the documents. Similarly, Soutar et al. (1995) examined the mechanisms companies used to formalize ethics and only a handful of companies had a feedback mechanism, such as social audits or reports, and still fewer reward or sanctioning mechanisms for instance audit committees and Ombudsmen.
‘Institutionalising ethics’ is the term used to describe incorporating ethics formally and explicitly into business, making it a regular, normal part of day-to-day business. Ethics is included in company policy-making at both the board and senior management levels, and, through a formal code, integrated into all daily decision-making and work practices for all employees (Tsalikis & Fritzsche, 1989).
Cohen (1997, cited in Moodie, 1997) concludes that the most effective code is one that is the product of consultation of the people working in the business. The code should reflect what the business is about; and what qualities, virtues and behaviour the employees should both have and display. Furthermore, once the code is finalised, regular reviews with staff and ethical audits should be conducted to measure the ethical performance of the company, and ensure that organisational members are meeting the standards set.
McDonald and Zepp (1989) identified a number of advantages and disadvantages of codes of ethics. They concluded that codes elucidate exactly what constitutes unethical behaviour; focus employee attention upon ethical issues; define limits of conduct; provide employees with the opportunity to refuse to comply with unethical behaviour; communicate management’s philosophy; and help in inducting and training new employees. Disadvantages focused on their generality; the codes themselves are not prioritised, and are not believed by employees.
Ethical codes are not a panacea. While a comprehensive examination of the disadvantages of ethical codes of conduct is beyond the scope of this paper, as stated above, one criticism focuses upon their generality [McDonald and Zepp (1989). For a detailed discussion of generalized versus detailed codes of conduct, see Laczniak (1983), Hoffman (1983) and Johnson (1983)]. Tsalikis and Fritzsche (1989) argue, that in order to be useful, codes, including codes for professional associations, must be specific. Unfortunately, codes tend to lack specificity. That is, professional codes of conduct, fail to address many important issues. Kohler (1999) suggests that as a result of the Laws affair, the Australian Broadcasting Authority will be forced to rewrite if not the broadcasting code, at least the definition of what a journalist is, and what a journalist does. John Laws argues that he is not a journalist responsible for the provision of “news and current affairs”, and as a result not bound by any code. He describes himself as an “entertainer”.
Andrews (1989) has suggested that corporate ethics has three facets: first, the ethics of individual managers; second, the informal influences in the work environment which impact upon ethical behaviour; and third, the formal institutionalization of ethics within the workplace. Thus in order to ensure an ethical organisation, firms should first ensure their recruitment and selection policies, procedures and practices are designed such that they minimize the possibility of people entering the orgnanisation who are inclined to behave in an unethical manner, through for instance, the use of honesty testing, thorough referencing checking and so forth.
It has been well documented that the attitudes and behaviour of one’s immediate supervisor and peers are influential factors effecting (un)ethical decision making (Baumhart, 1961; Carroll, 1975; Brenner & Molander, 1977; Posner & Schmidt, 1984). Thus ethical attitudes and behaviour by top management and one's peers should be managed such that they set the ethical mores of the company, which in turn, is supported by formal processes in the organization, including a code of conduct, provision of ethics training, ethics audit and so forth ( Soutar et al 1995).
The Laws affair, like the events following the 1980s, has again raised the debate of ethics and business. As many of the ’80s business leaders [e.g., Brian Yuill (Spedly Securities), Laurie Connell (ex-Rothwells Ltd), Alan Bond (ex-Bond Corp) and George Herscu (ex-Hooker) and politicians alike, (e.g., Brian Burke, former premier of West Australia), went before the courts, were convicted and jailed, some of Australia’s biggest companies moved to strengthen corporate governance, in part by employing non-executive directors and writing codes of conduct (Maiden, 1999). Cable and Wireless Optus, Telstra, Ansett and the big four banks for instance, all have codes of conduct. Cable and Wireless Optus’ code bans outside business dealings that create a conflict of interest. Telstra has a code of conduct and Ansett an ethical creed, which in one form or another, explicitly prohibit both the payment and receipt of bribes, pay-offs, kickbacks or other illegal payments or transfers in business. The National Australia Bank’s code includes “ethics in all our actions”, while the ANZ’s stresses staff conduct such that “honesty is beyond question” (cited in Maiden, 1999 p.13). Interestingly, Maiden writes that the Commonwealth Bank was unable to proved their code for his recent article.
But the Laws’s cash for comments affair, [indirectly] involving these same companies, together with a brief review of newspaper headlines involving inquiries conducted by the National Crime Authority, ACCC, Australian Companies and Securities Commission and royal commissions to name a few, into both prominent individuals and corporations, would raise serious doubts as to whether corporations and management have shed the morally bankrupt ethos that dominated the 1980s and evolved stronger ethical cultures.
For instance, former Macquarie Bank executive director Simon Hannes was recently convicted of insider trading (Lampe, 1999), while a former chairman of the Adelaide Stock Exchange and board member of the Australian Stock Exchange, Malcom McLachlan was recently banned by the Australian Securities and Investments Commission following a finding of failing to fulfill his duties “…honestly, fairly and efficiently” (Reece, 1999). Partners of Allen, Allen & Hemsley, one of Sydney’s oldest and largest law firms, must now find $23 million following a court ruling in which it was held responsible for a ‘dishonest and fraudulent conduct by a former colleague (Walkley & Lampe, 1999). Meanwhile a former CEO of Switzerland General Insurance’s Australian operations, recently told the NSW Supreme court that entertaining family members at company expense was common practice in the late 1980s, saying that purely personal (restaurant meal) expenses, were “provided for in the company standards” (cited in Bica, 1999, p.2). Furthermore, he claims it continues today. In yet another recent example, the fast food giant, McDonald’s has been accused of operating its controversial “Monopoly McMatch and win” game in a misleading and unconscionable way and is expected to face Federal Court (Howell, 1999). For a more detailed discussion of unethical behaviour see Brown (1999).
Indeed Brown (1999, p.7) argues that ‘rorting’-‘…incident(s) involving reprehensible or suspect behaviour by officials or politicians’- is an integral part of Australian culture and history. In his new book, “Rorting: The Great Australian Crime”, he traces its origins, beginning with the transportation of petty crooks-largely thieves and forgers-on the First Fleet; followed by colonial traders who seized upon and exploited opportunities by selling goods in short supply, sometimes at a profit of 4,000 per cent; continuing through the nineteenth century with corrupt arrangements between colonial police and bushrangers, and allegations of bribery at both state and local government levels in the early 1900s; black-marketing in the Second World War; large scale illegal betting in metropolitan Sydney in the 1960s; and corruption and illegal casinos in NSW in the 1970s. More recently, Brown identifies Federal politicians who have been found guilty of rorting their travel expenses allowances.
For instance, former Liberal senator Bob Woods pleaded guilty to false claims for travel and private vehicle allowances; former National Party MP Michael Cobbs was found guilty of fraud related to a travel allowance claim; Noel Crichton-Browne also a Liberal senator, pleaded guilty to two charges of rorting his parliamentary travel allowances; while now Independent senator Mal Colston, faced charges for alleged travel allowance fraud (Henderson, 1999). Then there were the unprecedented number of scandals about ministerial propriety, which saw a number of Coalition ministers either, resign voluntarily, or by force, for breach of the Prime Minister’s code of conduct (Seccombe, 1999).
Of more concern, however, is the widespread nature of fraud identified in the latest Australian Institute of Criminology (AIM) Report, also known as the KPMG Fraud Survey (cited in Hepworth, 1999). In the survey, 57 per cent of responding companies reported being the victim of at least one incident of fraud, while 69 per cent experienced more than one incident. Losses resulting from fraudulent activity amounted to 239 million dollars, up from 104 million in 1997. The report’s authors, argue that these figures are only the tip of the iceberg.
Dr Russell Smith, one of the authors, found that Australian companies were reluctant to report fraud, fearing the negative effect the resulting publicity would have on their commercial reputation, and loss of business. Similarly, while high technology fraud was found to be increasingly common, he argues that the resulting losses of $16 million were probably underestimated because companies were ignorant of the extent to which they were being defrauded through computer crime. Furthermore, financial institutions indicated a serious concern that publishing security flaws would expose them to similar actions by other perpetrators.
However, Smith argues that by failing to report fraud, offenders may believe that they are free to continue to act illegally, and that the companies’ lack of action would negate deterrents for other employees. Moreover, because management is seen to be unwilling to act, a general decline of ethical standards within the organization may result.
Poor internal controls were found to be the most significant factor enabling frauds to occur (KPMG Fraud Survey cited in Hayes, 1999). Merchant (1988 cited in Batten et al, 1997) argues that efficient, effective comprehensive internal control systems are a complementary device in assuring good business practices. However, a recurring theme in the literature and applied ethicists alike [e.g., Dr Simon Longstaff and Attracta Lagan, executive director and director of consulting at St James Ethics Centre, respectively (Vines, 1999; Guinness, 1999; Singleton, 1999)], in promoting ethical business practices is the role of senior management in clearly stating its values, seen to be practicing and endorsing them, and communicating and ensuring staff in the organization understand and accept those values (Batten et al, 1997; Milton-Smith, 1992; Southee cited in Small, 1992; Merchant, 1988 cited in Batten et al, 1997). Conversely, the influences of the perceived attitudes (and behaviour) of immediate supervisors and peers on unethical decision making is also well documented (Baumhart, 1961; Carroll, 1975; Brenner & Molander, 1977; Posner & Schmidt, 1984). Given the recent findings of Jackson et al, (in press), with respect to the relativistic criteria used by Australian managers to evaluate decisions with an ethical component, further research into Australian managerial values and their relationship to ethical decision making is warranted, and is that of their peers and supervisors.
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