Organizational Ethics

Introduction

The term “ethics”, as it is applied to business and organizations, is difficult to precisely define. The International Business Ethics Institute defines business ethics as “a form of applied ethics” that “aims at inculcating a sense within a company’s employee population of how to conduct business responsibly” (Business ethics primer, 2004). The Institute notes that the term business ethics does not translate well into other (non-English) languages and that it can be hard, even within American culture, to come to a common understanding of the term. As a result, “some organizations choose to recast the concept of business ethics through such other terms as integrity...or responsible business conduct” (Business ethics primer, 2004). Roy & Roy (2004) agree that “ethics is hard to define and includes the overlapping agendas of caring for the environment, corporate governance, sustainability, and personal probity” (p. 22).

However it is defined, in recent years the topic of ethics in organizations has received considerable attention in the business, scholarly and popular media. Huge scandals at giant corporations such as Adelphia Communications Corp., Tyco International Ltd., Global Crossing, WorldCom Inc., HealthSouth Corp, FINOVA Group, Inc. and most especially, Enron Corp. have all illustrated the importance of organizational ethics (Jennings, 2003; Sims & Brinkmann, 2003). This paper provides a summary, synthesis and commentary on the topic of ethics in organizations. Based on a review of research in current professional journals, a summary of different authors’ views on organizational ethics. Following this, a synthesis and commentary on the topic of ethics in organizations is provided.

Research: Ethics in Organizations

Sims & Brinkmann (2003) analyze the ethical aspects of the Enron Corporation scandal. Sims & Brinkmann (2003) argue that Enron’s organizational culture shaped employees’ ethical behavior and was the main factor behind the ethical crisis at Enron. Specifically, they argue that the Enron case demonstrates that “business ethics is a question of organizational вЂ?deep’ culture rather than of cultural artifacts like ethics codes, ethics officers and the like” (Sims & Brinkmann, 2003, p. 243). Sims & Brinkmann (2003) begin their analysis with the observation of an irony in the Enron scandal. They note that while today Enron is viewed as the prime example of bad business ethics, historically, “Enron looked like an excellent corporate citizen, with all the corporate social responsibility and business ethics tools an status symbols in place” (Sims & Brinkmann, 2003, p. 243). They provide a background history of Enron Corp., describing its operations, leadership, partnerships, and main business practices from its founding in 1985 to its collapse and bankruptcy in 2001. To analyze Enron’s culture, the authors use Edward Schein’s framework of organizational culture. Schein’s framework concentrates on the role of leadership as the main factor in shaping organizational culture. Schein argues that organizational leaders use five main mechanisms to influence an organization’s culture: “attention, reaction to crisis, role modeling, allocation of rewards, and criteria for selection and dismissal” (Sims & Brinkmann, 2003, p. 246).

Sims & Brinkmann (2003) look at all five of Schein’s mechanisms in Enron. In terms of attention, the authors argue that Enron’s leadership was focused almost exclusively on the “short-term bottom line”. Examining Enron’s reaction to crisis, Sims & Brinkmann (2003) found a consistent pattern of shifting blame, denying wrongdoing, and covering up wrongdoing. “Role modeling,” the third leadership component identified by Schein, is the example that leaders set for employees in terms of ethical behavior. Sims & Brinkmann (2003) observed that “According to the values statement in Enron’s Code of Ethics and its annual report, the company maintains strong commitments to communication, respect, integrity and excellence. However, there is little evidence that supports management modeling of these values” (p. 248). The authors noted that Enron’s leaders broke the law, engaged in a variety of unscrupulous business practices, denied wrongdoing, shifted blame to others, and covered up their own illegal and unethical activities. The “allocation of rewards” mechanism relates to how leaders reward behaviors. Sims & Brinkmann (2003) argues that “to ensure that values are accepted, leaders should reward behavior that is consistent with the values” (p. 248). Sims & Brinkmann (2003) argue that Enron’s compensation structure and its practice of paying high bonuses to executives contributed to the unethical work culture because the reward system “rewarded individuals who embraced Enron’s aggressive, individualistic culture and were based on short-term profits and financial measures” (Sims & Brinkmann, 2003, p. 249). The last mechanism, “criteria of selection and dismissal” relates to how leaders hire and fire employees. In terms of hiring, Sims & Brinkmann (2003) found that Enron’s leaders hired smart, Ivy-league graduates that displayed characteristics of aggressiveness, greed, a willingness to win at all costs, and a willingness to get around rules. Sims & Brinkmann (2003) argued that Enron’s system for performance review, discipline and firing also communicated this win-at-all-costs mentality. The system of performance evaluation was that of a forced ranking, with employees evaluating each other (after supervisors had ranked subordinates) and a firm policy of firing the bottom 15-20% of employees after each annual review. Sims & Brinkmann (2003) argue that “the selection and rewards system was consistent with the culture at Enron. It promoted greed, selfishness, and jealousy within the organization” (p. 251).

In their concluding analysis, Sims & Brinkmann (2003) argued,

Two of the most important lessons to learn from the Enron cultural history is that bad top management morality can be a sufficient condition for creating a self-destructive ethical climate and that a well-filled CSR and business ethics toolbox can neither