Module 1 Ethics Programme

Ethics is “the branch of philosophy that defines what is good for the individual and for society and establishes the nature of obligations, or duties, that people owe themselves and one another. In modern society, ethics define how individuals, professionals, and corporations choose to interact with one another”.

What is Ethics Programme

No company will ever be perfect, because no human being is perfect. Real people are not purely good or purely evil but are capable of doing both good and evil. Organizations should aim to design a system that makes being good as easy as possible. That means attending carefully to the contexts people are actually in, making ethical principles foundational in strategies and policies, keeping ethics top of mind, rewarding ethical behavior through a variety of incentives, and encouraging ethical norms in day-to-day practices. Doing so will never turn an organization full of humans into a host of angels, but it can help them be as ethical as they are capable of being.

An ethics program helps communicate your company’s business philosophy to employees, vendors, investors and customers. A good ethics program can help strengthen your relationships with employees and customers and improve your company’s reputation.

Although your employees might be familiar with your company’s informal stance on ethics, instituting a program eliminates any confusion and provides everyone with the same information regarding ethical business behavior.

“Typically, ethics programs convey corporate values, often using codes and policies to guide decisions and behavior, and can include extensive training and evaluating, depending on the organization.  They provide guidance in ethical dilemmas.” 

                                                               

                                                - Brian Schrag, Executive Secretary of the Association for Practical and Professional Ethics

Rarely are two programs alike. 

Rules & regulations form part of an ethics program involves ensuring that your company is in compliance with all laws and regulations for your industry.Compliance is not only good for your reputation; it can save you thousands of dollars in fines or legal fees if you fail to meet the requirements of a specific regulation.

Major elements of an Ethics Programme

 The major elements of a standard ethics programme may have the following among others:

1.       Code of Ethics

2.       Ethics Training

3.       Ethics Committee

4.       Ethics Officer

5.       Ethics Audit

 An ethics program can be particularly valuable if you have offices in distant locations that must handle compliance in their particular countries. The company website notes that such programs help employees throughout the world make ethical decisions and reduces the risk of harm to your image or bottom line.

The global research company Gartner advises companies to integrate their ethics program with business operations. Doing so can maximize the program’s impact by making ethical processes part of employees’ workflow. According to Gartner, anethics program should:

1.      Define the program mandate

2.      Mitigate and monitor risk

3.      Establish policies and procedures

4.      Oversee allegations of misconduct

5.      Provide training and communications

6.      Reinforce behavioral expectations

7.      Manage the function of behavior ethics

Why Ethics Programme

•       Lack of practical or philosophical consensus regarding doing what is right so we need a framework.

•       Managers drive company long-term success and social welfare by understanding and meeting stakeholder claims, developing and leveraging mutual stakeholder capabilities.

•       They have to remember there are some things they should always do and should never do.

•       They should realize which rights and duties can be justifiably waived when there are stronger competing obligations.

•       The third issue is to develop moral character and motivating ethical conduct. Practical decision making with little time information or resources.

•       Managers might lack the motivation or organizational resources to do the right thing.

The goal of an ethics program should be to provide a practical framework to implement ethical-organizational integrity that allows individuals to overcome the practical barriers that stop them from coming to and acting upon ethical decisions.

Most effective when perceived by employees to be “values-driven,” rather than simply compliance-driven and values-based programs are most effective in reducing unethical behavior, strengthening employee commitment and making employees more willing to deliver bad news to managers.

In Stanley Milgram’s (Yale University 1963) famous obedience experiments,  participants who were told by an authority figure to deliver increasingly powerful electric shocks to another person progressed to a much higher voltage than other people predicted they themselves would deliver. Context is not just powerful, researchers have learned; it is surprisingly powerful.

•       Satisfied Customers

•       Ethics programs that stress that employees treat customers fairly, provide accurate information and make every effort to resolve problems provide a benchmark for good customer service practices. Unhappy customers are likely to take their business elsewhere, but not before they tell a few friends about their negative experience with your company. Customers are particularly upset when a company doesn’t perform as promised. A 2012 survey by Accenture, a management consulting, technology services and outsourcing company, found that 78 percent of consumers are likely to find a new provider when a company doesn’t keep its promises. Your ethics program can not only help you retain current customers, but also attract new customers familiar with your stellar reputation.

•       Happy Employees

•       A positive reputation will not only help you keep customers; it can also help you recruit and retain employees. When people are eager to work for your company because of its reputation as a good employer, you can attract a much more qualified pool of potential employees. Better-qualified employees can help your company meet its goals more easily and remain successful. Current employees might be more likely to stay with your company if they feel that they are treated fairly, which can decrease costs associated with recruitment and hiring.

Significance of Business ethics Programme

The significance of a Business Ethics Programme is detailed below:

    i. Business Ethics is a key skill

In addition to establishing formal programs, companies are creating ethical workplaces by hiring the right talent. “High integrity and honesty” is the second-most important skill for business leaders, according to a recent survey. Today’s business professionals must understand the link between business ethics and business success.

    ii. Business ethics drive employee behavior

According to the 2018 Global Business Ethics survey, employees are more likely to apply ethical reasoning when their company clearly demonstrates why business ethics is important. Ninety-nine percent of U.S. employees who experience a strong ethics culture said they’re prepared to handle ethical issues. Companies that advocate for business ethics motivate their employees to perform their roles with integrity.

The first step in building this kind of ethical culture is to create an ethics program. According to the U.S. Department of Commerce, a complete ethics program should touch on all of the business functions. That includes operations, human resources, and marketing, to name a few. The global research company Gartner advises companies to integrate their ethics program with business operations.

 

    iii. Business ethics enhances the bottom line

Honorees on this year’s list of the World’s Most Ethical Companies outperformed the Large Cap Index by 10.5 percent over three years. A well-implemented ethics program can also reduce losses. Twenty-two percent of cases examined in the 2018 Global Study on Occupational Fraud and Abuse cost the victim organization $1 million or more. Companies that practice questionable ethics may also experience a decrease in stock price and severed business partnerships, which can affect profitability. In addition, business ethics is linked to customer loyalty. Over half of U.S. consumers said they no longer buy from companies they perceive as unethical. On the flip side, three in 10 consumers will express support for ethical companies on social media. Business ethics cultivates trust, which strengthens branding and sales. 

Types of Ethics Programme

There are two types of Control Systems used for managing  the ethics programme or integrity of the firm:

Compliance Orientation

Creates order by requiring that employees identify with and commit to specific required conduct.

It uses legal terms, statutes and contracts that teach employees the rules and penalties for noncompliance

Values Orientation

Strives to develop shared values. Although penalties are attached, the focus is more on an abstract core of ideals such as respect and responsibility.

Instead of relying on coercion, the company's values are seen as something to which people willingly aspire

 Implementing the Ethics programme

1. Establish organizational roles to manage ethics
2. Schedule ongoing assessment of ethics requirements
3. Establish required operating values and behaviors
4. Align organizational behaviors with operating values
5. Develop awareness and sensitivity to ethical issues
6. Integrate ethical guidelines to decision making
7. Structure mechanisms to resolving ethical dilemmas
8. Facilitate ongoing evaluation and updates to the program
9. Help convince employees that attention to ethics is not just a knee-jerk reaction done to get out of trouble or improve public image

Check points for effective implementation of the Ethics Program

•       Identify and Renew Company Values

•       Companies without a clear set of values may find themselves at a disadvantage when developing ethics programs. Ethics programs are most effective when perceived by employees to be “values-driven,” rather than simply compliance-driven and values-based programs are most effective in reducing unethical behavior, strengthening employee commitment and making employees more willing to deliver bad news to managers. Many companies conduct regular companywide initiatives that involve employees at all levels of responsibility when renewing company values and updating them when appropriate.

•       Secure Visible Commitment From Senior Managers

•       Most ethics professionals agree that it is crucial to enlist senior management support for an ethics program to be successful. Senior managers should participate in training sessions, make ethics a regular element in speeches and presentations, and align their own behavior with company standards. If employees view an ethics program as merely an effort to protect the reputation of top management, the program may prove more harmful than no program at all.

•       Engage the Board of Directors

•       Engage directors in the ethics process by instituting a board ethics committee or by placing ethics on the board agenda as a regular item for discussion. Consider special training to enable directors to carry out their ethical responsibilities confidently. Many U.S. companies have instituted board ethics committees and training in recent years, a move motivated in part by the many regulations establishing that directors may be held liable for corporate ethical transgressions.

•       Develop an Ethics Code or Code of Business Conduct

•       Comprehensive codes are aligned with company values and all applicable laws. This addresses the full range of ethical dilemmas employees are likely to face and are updated regularly as new challenges emerge. It is important to be clear and specific about what is required of employees, where leeway is allowed in decision making and which ethical issues are nonnegotiable. Unclear rules and unclear expectations of employees are the single most prominent obstacle to ethical behavior.

•       Build Ethics Into Mission and Vision Statements

•       Many companies build ethical values and goals into their mission and/or vision statements. This helps senior managers and employees understand that values and ethical standards are integral to all company operations and planning and not simply an “add-on” to be considered after important decisions have been made.

•       Integrate Ethics Into all Aspects of Company Communications

•       Leverage existing company infrastructure to demonstrate to employees that ethics is an integral part of all operations and decision making. Integrate ethics and compliance training materials into multiple delivery sources, including new employee orientations, management courses, sales training, business meetings, business plans and other aspects of day-to-day activities

•       There is an old proverb that says, “The best time to plant a tree was 20 years ago. The second best time is now.” If you haven’t implemented a solid ethics policy, then now is the best time. If you already have an ethics policy, then now might be a good time to review it.

Management of Ethics or Integrity

Viewing a business ethics programme as part of strategic planning & management is essential for the success of the firm. ‘Shared values’ among the employees is the glue of successful management and control of any business ethics programme. When the business ethics programme help to align and direct activities towards an ethical culture, there will be commitment to long term ethical  programme of the firm.

Ethics Management – planning, implementation and coordination of activities of an organisation in achievement of the institutional integrity control and internal control - element of a control system of that organisation.

Management that enable the organisation to reach its goals is essential for the success of the Ethics Programme.  

There are both Hard controls and Soft controls : Hard controls based on people and soft controls are based on systems. Hard controls include authorisations, approvals, reconciliations and delegations while soft controls include code of conduct, ethical culture and Integrity. Soft controls are subjective in nature as it is difficult to test them and hard controls are ojective in nature as it is easy to test them. 

Internal control explicitly recognizes ethical operations as an element of general objective to be achieved through effective, build in and on-going internal control by management and other personnel.  This include systems and procedures and company culture. External controls include the regulatory framework, applicability of codes of conduct by the industry/profession and the maturity of the market systems.

There are three types of controls normally observed in management & control of the ethical programmes:

1.       Formal Controls

These are generally input controls that provide proper tools & resources. Proper selection of employees, ethics training and structural systems , including communication systerms

Putting Ethical Design into Practice

A leader designing an ethical culture should try to create contexts that keep ethical principles top of mind, reward ethics through formal and informal incentives and opportunities, and weave ethics into day-to-day behavior.

•       Hiring

•       Although interviews are typically treated as opportunities for identifying the best candidate, they also begin the acculturation process. At one Fortune 100 firm, for instance, interview questions are designed around a core value, such as putting customer needs first. In one interview script, candidates are told of this value and then asked, “Tell me about a time when you uncovered an unmet need of a customer that you were able to address.” We don’t know if this question identified people who are good at treating customers respectfully, but that’s not necessarily the point. Highlighting values in the interview reveals their importance to the organization. It is one piece of a broader system that draws attention to ethics.

•       Evaluation

Ethics can also be woven into the design of performance evaluations to highlight their importance to an organization as well as to reward and encourage good behavior. At Johnson & Johnson, for instance, each executive’s 360-degree evaluation is built on the four components of the company’s famous credo, which expresses commitment to customers, employees, communities, and stakeholders. In one version of the evaluation we saw, each executive was rated on items such as “nurtures commitment to our Credo,” “confronts actions that are, or border on, the unethical,” and “establishes an environment in which uncompromising integrity is the no.1”

•       Compensation

Aligning financial incentives with ethical outcomes may sound easy in principle, but it is tricky in practice. This is where a mission statement can help. Southwest Airlines has used an executive scorecard to tie compensation to its four core values: every employee matters, every flight matters, every customer matters, and every shareholder matters. Each value is demonstrated by an objective measurement—“every employee matters” by voluntary turnover; “every flight matters” by ontime performance. This scorecard highlights how well core ethical values align with business success, helps keep employees’ attention on them, and suggests the behaviors needed to realize them.

 

2.       Process Controls

The process controls include management commitment to the ethics programme and the methods or systems of evaluation

3.       Output Controls

This includes setting standards against actual behavior. One of the most popular methods of evaluating ethics programme is an ethics audit.

Leaders can reward ethical actions by showing employees the positive impact of their work on others and recognizing their actions in presentations and publications. They can also create opportunities within the organization to behave ethically toward colleagues.

In one recent field experiment(2018) managers were randomly assigned to perform five acts of kindness for certain fellow employees over a four-week period.

Not only did this increase the number of kind acts observed within the organization, but recipients were more likely than controls to subsequently do kind things for other employees, demonstrating that ethical behavior can be contagious.

These acts of kindness improved well-being for those performing them as well as for recipients. Perhaps most important, depressive symptoms dropped dramatically among both groups compared with the control condition, a result that continued for at least three months beyond the initial one-month intervention.