Category: Starting a Business

Business ethics in the workplace is about prioritizing moral values for the workplace and ensuring behaviors are aligned with those values — it’s values management. Yet, myths abound about business ethics. Some of these myths arise from general confusion about the notion of ethics. Other myths arise from narrow or simplistic views of ethical dilemmas.

1. Myth: Business ethics is more a matter of religion than management.

Diane Kirrane, in “Managing Values: A Systematic Approach to Business Ethics,”(Training and Development Journal, November 1990), asserts that “altering people’s values or souls isn’t the aim of an organizational ethics program — managing values and conflict among them is …”

2. Myth: Our employees are ethical so we don’t need attention to business ethics.

Most of the ethical dilemmas faced by managers in the workplace are highly complex. Wallace explains that one knows when they have a significant ethical conflict when there is presence of a) significant value conflicts among differing interests, b) real alternatives that are equality justifiable, and c) significant consequences on “stakeholders” in the situation. Kirrane mentions that when the topic of business ethics comes up, people are quick to speak of the Golden Rule, honesty and courtesy. But when presented with complex ethical dilemmas, most people realize there’s a wide “gray area” when trying to apply ethical principles.

3. Myth: Business ethics is a discipline best led by philosophers, academics and theologians.

Lack of involvement of leaders and managers in business ethics literature and discussions has led many to believe that business ethics is a fad or movement, having little to do with the day-to-day realities of running an organization. They believe business ethics is primarily a complex philosophical debate or a religion. However, business ethics is a management discipline with a programmatic approach that includes several practical tools. Ethics management programs have practical applications in other areas of management areas, as well. (These applications are listed later on in this document.)

4. Myth: Business ethics is superfluous — it only asserts the obvious: “do good!”

Many people react that codes of ethics, or lists of ethical values to which the organization aspires, are rather superfluous because they represent values to which everyone should naturally aspire. However, the value of a codes of ethics to an organization is its priority and focus regarding certain ethical values in that workplace. For example, it’s obvious that all people should be honest. However, if an organization is struggling around continuing occasions of deceit in the workplace, a priority on honesty is very timely — and honesty should be listed in that organization’s code of ethics. Note that a code of ethics is an organic instrument that changes with the needs of society and the organization.

5. Myth: Business ethics is a matter of the good guys preaching to the bad guys.

Some writers do seem to claim a moral high ground while lamenting the poor condition of business and its leaders. However, those people well versed in managing organizations realize that good people can take bad actions, particularly when stressed or confused. (Stress and confusion are not excuses for unethical actions — they are reasons.) Managing ethics in the workplace includes all of us working together to help each other remain ethical and to work through confusing and stressful ethical dilemmas.

6. Myth: Business ethics in the new policeperson on the block.

Many believe business ethics is a recent phenomenon because of increased attention to the topic in popular and management literature. However, business ethics was written about even 2,000 years ago — at least since Cicero wrote about the topic in his On Duties. Business ethics has gotten more attention recently because of the social responsibility movement that started in the 1960s.

7. Myth: Ethics can’t be managed.

Actually, ethics is always “managed” — but, too often, indirectly. For example, the behavior of the organization’s founder or current leader is a strong moral influence, or directive if you will, on behavior or employees in the workplace. Strategic priorities (profit maximization, expanding marketshare, cutting costs, etc.) can be very strong influences on morality. Laws, regulations and rules directly influence behaviors to be more ethical, usually in a manner that improves the general good and/or minimizes harm to the community. Some are still skeptical about business ethics, believing you can’t manage values in an organization. Donaldson and Davis (Management Decision, V28, N6) note that management, after all, is a value system. Skeptics might consider the tremendous influence of several “codes of ethics,” such as the “10 Commandments” in Christian religions or the U.S. Constitution. Codes can be very powerful in smaller “organizations” as well.

8. Myth: Business ethics and social responsibility are the same thing.

The social responsibility movement is one aspect of the overall discipline of business ethics. Madsen and Shafritz refine the definition of business ethics to be: 1) an application of ethics to the corporate community, 2) a way to determine responsibility in business dealings, 3) the identification of important business and social issues, and 4) a critique of business. Items 3 and 4 are often matters of social responsibility. (There has been a great deal of public discussion and writing about items 3 and 4. However, there needs to be more written about items 1 and 2, about how business ethics can be managed.) Writings about social responsibility often do not address practical matters of managing ethics in the workplace, e.g., developing codes, updating polices and procedures, approaches to resolving ethical dilemmas, etc.

9. Myth: Our organization is not in trouble with the law, so we’re ethical.

One can often be unethical, yet operate within the limits of the law, e.g., withhold information from superiors, fudge on budgets, constantly complain about others, etc. However, breaking the law often starts with unethical behavior that has gone unnoticed. The “boil the frog” phenomena is a useful parable here: If you put a frog in hot water, it immediately jumps out. If you put a frog in cool water and slowly heat up the water, you can eventually boil the frog. The frog doesn’t seem to notice the adverse change in its environment.

10. Myth: Managing ethics in the workplace has little practical relevance.

Managing ethics in the workplace involves identifying and prioritizing values to guide behaviors in the organization, and establishing associated policies and procedures to ensure those behaviors are conducted. One might call this “values management.” Values management is also highly important in other management practices, e.g., managing diversity, Total Quality Management and strategic planning.

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 763-971-8890
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

Boards need to discuss horrible ideas: the idea that your product might no longer be relevant to your target market, the idea that your staff might prefer to work elsewhere, or that your technology might leave you unable to deliver goods and services. These are not issues that management like to talk about and, indeed, when we are being honest these issues scare directors as well as executives. But we do need to talk about them.

A recent failure in IT service left an airline unable to fly because it could not book passengers on to flights, work out where its planes were, or roster crews to work. The booking platform had been outsourced and the failure breached the service level provided under the outsourcing contract. Now journalists are reporting that the resulting damages may bankrupt the IT service company and the airline is struggling to reassure potential passengers that they can be relied upon; not an easy task when for several days the news headlines were about executives missing meetings, families unable to return from holidays and brides unable to attend their own weddings.

The key question of ‘what will happen if the technology fails’ had been asked and answered with assurances of back up sites, time limits on outages and other comforting facts. These assurances proved false. Did something stop the board from asking questions that might have revealed that the assurances were not deliverable under the arrangement as implemented?

Was it a lack of understanding of the importance of a booking system to an airline? I don’t think so.

Could it have been that the board were totally trusting of IT suppliers who had never before failed in any way? I doubt it.

Or was it that, having asked a good question and received a satisfactory answer, the board conversation quickly moved on? Could directors have been uncomfortable with pursuing the idea of what a total failure would mean?

Boards need to be places where uncomfortable conversations happen. A recent harassment case was followed by a spate of embarrassing remarks such as ‘we always knew he was a party guy’ or ‘everyone knew he liked the ladies’. Why did the board not consider the implications of these gems of knowledge? With hindsight it all seems so predictable. Why was it too hard to apply foresight?

Occasionally boards discuss issues that dramatically affect the future of the company. It is imperative that directors speak up and follow their trains of thought to the most uncomfortable destinations, as well as to the most likely, or most profitable ones. Questions such as ‘What is the worst thing that can go wrong’ should receive several considered answers, from the board, management or specialist advisers. Mitigation or avoidance strategies can only be designed if the underlying events have been deemed possible.

As directors we must tackle the dangerous ideas in a safe environment; before we ever encounter them in real life. We need to allow thoughts to wander to the darkest outcomes and to contemplate with serious intent exactly how much we are willing to risk on each strategic venture. The trouble is, we often find it hard to give voice to these thoughts for fear of being perceived as unhelpful, unsupportive, or biased against the proponent of each strategy.

Chairmen can help by encouraging their boards to spend more time on the potential downsides than they do on the potential upsides. Only when it is safe to discuss the unspeakable horror of adverse outcomes will it be possible to avoid them.

What do you think?

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Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her book Dilemmas, Dilemmas: Practical Case Studies for Company Directors.

Let’s Start With “What is ethics?”

Simply put, ethics involves learning what is right or wrong, and then doing the right thing — but “the right thing” is not nearly as straightforward as conveyed in a great deal of business ethics literature. Most ethical dilemmas in the workplace are not simply a matter of “Should Bob steal from Jack?” or “Should Jack lie to his boss?”

(Many ethicists assert there’s always a right thing to do based on moral principle, and others believe the right thing to do depends on the situation — ultimately it’s up to the individual.) Many philosophers consider ethics to be the “science of conduct.” Twin Cities consultants Doug Wallace and John Pekel (of the Twin Cities-based Fulcrum Group) explain that ethics includes the fundamental ground rules by which we live our lives. Philosophers have been discussing ethics for at least 2500 years, since the time of Socrates and Plato. Many ethicists consider emerging ethical beliefs to be “state of the art” legal matters, i.e., what becomes an ethical guideline today is often translated to a law, regulation or rule tomorrow. Values which guide how we ought to behave are considered moral values, e.g., values such as respect, honesty, fairness, responsibility, etc. Statements around how these values are applied are sometimes called moral or ethical principles.

So What is “Business Ethics”?

The concept has come to mean various things to various people, but generally it’s coming to know what it right or wrong in the workplace and doing what’s right — this is in regard to effects of products/services and in relationships with stakeholders. Wallace and Pekel explain that attention to business ethics is critical during times of fundamental change — times much like those faced now by businesses, both nonprofit or for-profit. In times of fundamental change, values that were previously taken for granted are now strongly questioned. Many of these values are no longer followed. Consequently, there is no clear moral compass to guide leaders through complex dilemmas about what is right or wrong. Attention to ethics in the workplace sensitizes leaders and staff to how they should act. Perhaps most important, attention to ethics in the workplaces helps ensure that when leaders and managers are struggling in times of crises and confusion, they retain a strong moral compass. However, attention to business ethics provides numerous other benefits, as well (these benefits are listed later in this document).

Note that many people react that business ethics, with its continuing attention to “doing the right thing,” only asserts the obvious (“be good,” “don’t lie,” etc.), and so these people don’t take business ethics seriously. For many of us, these principles of the obvious can go right out the door during times of stress. Consequently, business ethics can be strong preventative medicine. Anyway, there are many other benefits of managing ethics in the workplace. These benefits are explained later in this document.

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

Company directors on not-for-profit boards are often required to make substantial donations to the cause, or to elicit substantial donations from their network. Those that can’t or won’t become major benefactors are, more or less subtly, removed from the boardroom. But does this model sit well with current notions of directors’ responsibility and the professionalization of the role.

All around the world there are stories (often in the form of court case judgements) about boards of charitable organisations who were found to have been inappropriately focussed on only a few aspects of governance – or worse still, operations – and to have neglected their governance role to the point where they were found personally liable for corporate losses or other faults. Discussions with CEOs in the sector reveal a deep frustration that not all boards are living up to current expectations but that ‘it is hard to demand more’ given that the board members are unpaid volunteers.

Prime among the CEOs lists of grievances is the inability of the board to contribute at a strategic level to the company or to provide the CEO with meaningful mentoring. Even when boards are contributing to financial oversight it is often at a superficial level such as checking expenditures against budgets rather than at a strategic level such as determining the appropriate amount of financial reserves and investment strategies. Many boards leave the financial oversight entirely to the executives or concentrate only on the aspects that they can influence such as donations, fund raisers, etc.

Then there are the ‘two tier boards’ not, alas, the carefully designed and culturally appropriate management and governing boards that prevail in some jurisdictions, but those where some board members are ‘more equal than others’. On these boards there is an inner circle of members who take a strong interest in the governance, often chairing committees whose membership excludes their ‘outer circle’ board colleagues and assuming responsibility in line with modern expectations of the director role. The ‘outer circle’ members frequently provide funding or host fundraising activities or otherwise use their personal networks to support the aims of the organisation. These boards are frequently characterised by high levels of mistrust and occasionally by mutual loathing amongst the board members. Each circle can easily resent the other as having a role that excludes the other.

Some organisations are restructuring their boards to allow for a proper governance function and creating specific committees or communities for volunteers, donors and supporters. These organisations manage to achieve a ‘best of both worlds’ solution with fit for purpose membership of societies of friends, councils of patrons or boards of directors. The result is an organisation that knows where to look for board leadership and is not disappointed when it does look there. The CEOs of these organisations report that they are better able to design engagement strategies for each group, and that they benefit greatly from the increased input of a governing board that takes on all the aspects of its professional role.

Perhaps the day of the professional director is dawning in our not-for-profits. With increased director liability, greater demands for transparency, more rigorous regulation it is certainly time for directors to play a bigger role in governance.

What do you think?

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Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her book Dilemmas, Dilemmas: Practical Case Studies for Company Directors.

Our firm regularly gets calls, asking about the differences between for-profit and nonprofit Boards. Although there are certain differences, there are more similarities than people often realize.

Misconceptions often stem from the belief that nonprofits have to have a Board because they’re nonprofits. Not true. Chartered, or registered, nonprofits have to have a Board because they’re nonprofit corporations — they’re corporations just like for-profit corporations. Corporations must have Boards, whether nonprofit or for-profit.

Boards of corporations have certain legal duties, or fiduciary duties, the most basic of which are the duties of loyalty and care. Recent literature also refers to a duty of obedience. Both nonprofit and for-profit Boards must adhere to these duties — and the ways that they do that are very similar between both types of Boards.

This table gives a listing of the specific differences between the Boards, but keep in mind that those differences don’t result in major differences between how the Boards recruit and develop and organize members, do their planning, hold their meetings, make decisions, supervise the CEO, approve budgets and major contracts, etc.

There’s many more free resources about Boards — for-profit and nonprofit – in the “Free Complete Toolkit for Boards.”

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.