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Ethical Climate of an Organisation

What is Ethical Climate?

Signals and incentives, overt and subtle, through which
people learn
How things are done here?
What do we really care about?
How to get ahead?
Why is it important for managers to understand ethical
As individuals, managers are influenced by EC
As leaders, they can sustain it or change it
EC affects managers’ sensitivity to ethical issues, their ability
to make sound judgments, their willingness to take action
based on those judgments
Influences on the Individual


history and culture

Ethical standards in the industry

Ethical standards in society (Other
influences such as family, peer group,
political groups, mass media, religion,
Obstacles to Ethical Conduct
Pressures for conformity
Peer pressure
‘Don’t rock the boat’
‘The nail that sticks up gets hammered down’
Ethical issues regarded as troublesome intrusions in
business decision making
Erosion of integrity
Self-deception and rationalisation
 Fear of being wrong, standing out, taking responsibility, losing face,
disappointing others, seeming not in control of the situation, making
someone unhappy, or making someone happy?
 Just this one time
 Everyone else does it
 I have no choice
 No one will ever know
 I’m just doing my job
 Nobody is really hurt
 I’ll see that things are done differently when I’m on top
Silent tolerance of dubious practices leads to rationalised
acceptance, and eventually adoption
Obstacles contd. 1
Evaluation and reward systems
Set the tone of the organisation
If ethical decisions are not rewarded, managers do not
pay attention to ethics
Evaluation systems often focus on short-term
quantifiable goals
Obstacles contd. 2
Fragmentation and deference to authority
Business is an ingenious device for obtaining individual
profit without individual responsibility!
Dangerous side effects of division of labour
 Fragmentation of authority
 Erosion of accountability
 People feel little sense of personal responsibility for the outcomes
 People view themselves as small part of a large system over
which they have no control
People defer to the authority of those higher up in the
org, and even carry out something morally wrong as it is
part of their duty
Obstacles contd. 3
Job pressures and crises
Performance pressures, deadlines, crisis
When stakes are high – power, prestige, wealth, social
Fire fighting approach
In a crisis, ethics is seen as an additional complication!
‘Moral muteness’
Creating an Ethical Climate
Goals and shared values
Management example
Measures and rewards
Recruiting and promotion
Developing an ‘Ethics Programme’
for an Organisation
HRM department, ethics team, ethics officer
Six components of ethics programme
1. Formal codes of conduct
2. Ethics committee to formulate ethics policy and investigate
cases of unethical conduct
3. Ethics communication system for employees to post queries,
seek advice, report any wrongdoing
4. Ethics officer to communicate and implement the policy
5. Ethics training programmes
6. Disciplinary system to take disciplinary action against erring
Code of Conduct
 Statement comprising
Code of ethics
Code of conduct
Statement of values
 Code of ethics is an exhortation to employees to observe
ethical norms, inspirational, comprehensive.
Specifies methods for reporting violations, disciplinary action
for violations and structure of the due process to be followed
 Code of conduct specifies desirable and undesirable
behaviours at the workplace and beyond
Inspirational in content
 Statement of values meant to serve the general public, and
addresses the stakeholder groups
 Code of Business ethics released by CII on July 05, 2011
Ethics Committees
Responsible for formulation of ethics policy, developing
ethical standards and ensuring compliance
 Is a separate structural mechanism appropriate to deal
with ethical problems that arise in individual departments?
Is ethical committee empowered or is it ‘symbolic’ only?
How serious is top management about ethics committee?
Who are the members of the ethics committee?
Individuals should be aware of corporate culture and ethical
climate of the organisation
Objectivity, ethical behaviour by the members
Misuse of ethics committee by top management to serve
their interests or legitimise their idea of ‘ethical’ standards
Ethics Communication Systems
 Communicate and educate employees about a company’s ethical
standards and policies
 Build mechanisms to help employees obtain guidance and resolve
questions regarding compliance with the company’s ethical
 Establish means of enquiry such as telephone hotlines, suggestion
boxes, email to seek advice from competent authorities. Allow
anonymous contact, if required
 Internal means of disseminating information to employees, such
as newsletters, meetings, displaying posters in the most visible
and accessible places
 Having employees sign their allegiance to the organisational
values and goals
 Communicating the company’s ethics and values to external
stakeholders through press releases, stakeholder meetings
Ethics Officers
Concept of ethics officer popular in US, Europe
Responsible for assessing the needs and risks that an
organisation-wide ethics programme must address,
developing and distributing a code of conduct or ethics,
conducting training programmes, establishing and
maintaining a confidential service to answer employees’
questions about ethical issues, making sure that the company
is in compliance with government regulation, monitoring and
auditing ethical conduct, taking action on possible violations
of the company’s code and reviewing and updating code
In US, 1/3 of ethics officers have law degrees, ¼ of them
have a finance background
Ethics Training Programme
Sensitise employees to the company’s ethics and
values, what ethical dilemmas they are likely to face,
and how to deal with them
Induction training as well as refresher training
Ethics learning centre: books, journals, films
Commitment of senior executives from various
departments is essential
Seriousness of the effort should be visible to
Disciplinary System
Dealing promptly and decisively with unethical behaviour
Failure to take action may lead to feeling of inequity among
ethical employees and erode the ethical climate
Action should be consistent (fair, unbiased,
Investigate case thoroughly
Think of consequences (direct, unintended)
Show due care (ensure correction, not destruction)
Monitoring: Observation, internal audit, surveys,
investigating and reporting system