CHAPTER ONE

THE CONCEPT OF BUSINESS ETHICS

This chapter introduces students to the subject matter of business ethics. It is expected that

after reading this chapter students should be able to:

 Explain the concept of business ethics

 Appreciate and understand the relationship between business and ethics

 Identify and explain the various sources of ethics

 Identify the factors that affect ethical behaviours

 Differentiate between ethics and law

 Discuss why it is ethical to follow the law

Introduction

Every act by businesses, managers, individual employees or a person can be viewed and

analysed from ethical perspective. Apparently, what you may justify as right may be on the

floor when weighed on the ethical scale. Businesses exist to create value for people, enhance

the lives of society (i.e. people and even animals) as well as maintain their existence in

business. To the extent that businesses satisfy this very essence, we can conclusively say that

the business is conducted, performed and implemented in an ethical manner. The big question

is, what has ethics got to do with business? In fact, everyone shares the joke about ‘business

ethics.’ ‘It must be an oxymoron’ or ‘it must be a short course’. Or ‘I didn’t know business

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had any ethics’. Despite this popular misconception, business ethics is a robust academic

discipline that has yielded much fertile territory in recent years.

Ethics has become important in business today because increasing reports of scandals and

financial malfeasance has become part of organizational life. Every organizational decision,

made by either a board or a manager has ethical implications. Thus, organizations have

embraced the concept of ethics and have actually encouraged ethical decision making.

What is Business Ethics?

Business ethics is a combination of two important words: Business and Ethics. A proper

understanding of business ethics requires decoupling the two words for better understanding

and appreciation of the concept. Business is any organized activity by an individual or

organization to produce and sell, for a profit goods and services that satisfy the needs of

society. Ethics on the other hand is about one’s ability to differentiate right from wrong. Put

together, business ethics is a form of applied ethics or professional ethics that examines

ethical principles and moral or ethical problems that arise in a business environment. It has an

overarching effect on business, individual and the entire organization.

Put together, business ethics refers to the study of people’s tendencies to behave in morally

appropriate ways in organizations. It is sometimes called corporate ethics. Business ethics can

also be defined as the written and unwritten codes of principles and values determined by an

organization’s culture that govern decisions and actions within that organization. It has an

overarching effect as it applies to all aspects of business conduct on behalf of both

individuals and the entire company.

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The concept of Ethics

It is abundantly clear that people always know the right thing to do. The difficulty however,

is doing the right thing. This notion is central to the distinction between two key terms –

moral values and ethics-that are essential to understanding the nature of ethical behaviour in

organizations. When social scientists speak of moral values (usually more simply referred to

as morals), they are referring to people’s fundamental beliefs regarding what is right or

wrong, good or bad. One of the most important sources of moral values is the religious

background, beliefs, and training we receive. Although people’s moral values may differ,

several are widely accepted. For example, most people believe that being charitable to

someone in need is right whereas killing an innocent person is wrong. Based on these beliefs,

people are guided in ways that influence the decisions they make and the actions in which

they engage. These standards are referred to as ethics.

Ethics refers to standards of conduct that guide people’s decisions and behaviour (e.g., not

stealing from others). Most organizational scientists acknowledge that it is not a company’s

place to teach employees moral values. After all, these come with people as they enter the

workplace. However, it is a company’s responsibility to set clear standards of behaviour and

to train employees in recognizing and following them. Just as organizations prescribe other

kinds of behaviour that are expected in the workplace (e.g., when to arrive and leave), so too

should they prescribe appropriate ethical behaviour (e.g., how to complete expense reports

and what precisely is considered a bribe). Not surprisingly, most top business leaders

recognize that clearly prescribing ethical behaviour is a fundamental part of good

management. Thus, ethics is about conduct.

It seems obvious that we should care about ethics because behaving ethically is the right

thing to do. Indeed, many famous people agree that ethical behaviour is of paramount

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importance. For example, President George W. Bush said, “At this moment, America’s

highest economic need is higher ethical standards-standards enforced by strict laws and

upheld by responsible business leaders. Similarly, Robert D. Hass, former chairman of Levi

Strauss & Co., posited that “A company’s values what it stands for, what its people believe

in-are crucial to its competitive success.” Despite these lofty and well-meaning statements

from leaders, we already noted that people do not always do the right thing. Under the right

circumstances, even seemingly ethical people behave unethically. Pressure to meet sales

quotas, for example, have led some stockbrokers to boost their commissions by convincing

unknowing clients to make bad investments. Clearly, this is wrong on moral grounds.

Although managers may be uncomfortable changing their morals, they must be concerned

about promoting ethical behavior for two sound business reasons. First, over the long run,

being ethical is profitable. Second, being ethical satisfies many of today’s legal regulations.

Figure 1 illustrates the link between morality, ethics, decision and behaviour.

Moral values Ethics Decision Behaviour

(Fundamental beliefs (Standards of conduct (Plan for behaving (Action taken

about what is good or in keeping with one’s in an ethical following from the
bad, right or wrong) moral values)
fashion) decision made)
Example: It is wrong to Example: I should not
harm another person. steal Example: I decide Example: I do not steal
not to steal

 Religious  Clearly  Organizational group norm

background, articulated
beliefs, ethical standards  Culture and the organization
training
 Training in  Observations of leadership
 Level of recognizing and
cognitive applying ethical  Work attitudes and motives
moral standard
development
 External stressors

Although individuals and businesses are expected to act ethically, business ethics scholars

differ in their descriptions of the context of an ethical choice, on the principle to use in

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making the choice, and on the particular alternative dictated by that principle. Business ethics

is a process of normative thinking about business. Its task is not to hand down ethical

verdicts. The field of business ethics does not 'accuse' anyone else.

Sources of Ethics

All human beings have a basic sense of right and wrong, which develops quite early in life

and is often modified with maturity and experience. However, there are some categories of

people who appear to be without concern for the impact of their actions on other humans.

These people, Psychologists label as sociopaths.

Are humans born ethical? Or we learn to be ethical? This issue has preoccupied the minds of

scholars for centuries. The argument is, are babies born with some knowledge or inclinations,

or a newborn baby is a blank slate, with knowledge and inclination provided by experience.

This complex issue is sometimes referred to as the “nature vs. nurture”, debate, and has been

a subject of a great deal of study and experimentation. However, present evidence point to the

fact that, in some ways, newborns are not all alike. In layman’s terms, infants are born with

personalities or pre-dispositions. All share certain physical instincts, but such traits as

excitability or placidity seem to be present in varying degrees from birth. It is imperative

however, to appreciate the fact that, a baby’s upbringing from its earliest days also has

significant influence on how it reacts to the world around it. There is enough evidence to

conclude, at least tentatively, that children brought up in secure and nurturing environments

show a strong tendency to view the world differently than children raised in less secure and

more hostile environments.

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While evolutionary researchers have established that patterns of decision-making and

concepts of right and wrong emerge from early life experience, it important to note that

influence is not the same as determination. This is because unless individuals at least in

some instances make truly free choices, the concept of ethics makes no sense. It is a principle

of both philosophy and law that no one is obliged to do what they cannot do.

It can be said that the sources of an individual’s sense of moral right and wrong lie to some

extent in their personality, and this is impacted by early experience. There are a variety of

ways by which individuals learn or inculcate ethical values.

Parents

Parents are certainly a major influence on the sense of ethics of that adults bring to their

work. Consider the statement, “She has a good work ethic.” It is a common way of saying

that someone has certain beliefs and attitudes that influence their performance at work. If this

can be said about someone in her first job, then the good work ethics must have been formed

before they became an employee. For most people, this means that it was formed at home as

they were growing up, and this shows the influence of parents in development and

internalization a good work ethic. Even adults who no longer agree intellectually with their

parents’ teaching about right and wrong behaviour sometimes admit that their parents’

teaching influence their thoughts and actions. Therefore, parents are one source of ethics that

an individual does bring to their work.

Peers

Our siblings, schoolmates, college mates, fellow workers or members of a club, team or

social group to which an individual belongs influence our sense of ethics. Often individuals

define themselves by their group of friends, and adults also have their views shaped to some

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degree by their peers. It is said that police officers often have a more negative view of

humanity than those in some other professions because they spend so much of their time

dealing with criminals.

Peers can also be members of the same profession. Accountants, attorneys, medical doctors

and members of other professions undergo extensive schooling. They learn not only how to

minimize taxes or diagnose diabetes, but also how member of their profession act and think.

Professional education involves socialization as well as information transmission. Obviously,

not all accountants or attorneys think alike. However, an argument can be made that members

of a given profession think more alike than non-members of that profession. Another factor

involving peer influence in the profession is the existence of professional code of conduct.

These codes of conducts are not perfect, and they do not influence all members of a

profession equally. However, they do provide a starting point for making some kinds of

ethical judgments, and they are more or less widely known within a profession.

Teachers

They are another important medium of an individual’s sense of morality. Whether it is the

simple but often-repeated rules of grammar school or the more involved exposition that

occurs in college classes, teachers as authority figures do communicate in ways that influence

the reasoning and judgment of at least some of their students. For example, almost all

teachers communicate, subtly or overtly, that cheating is wrong. They say this, they write it in

a syllabi and on exam instructions, and they act on this when they detect cheating. Teachers

also often communicate the value of doing assignments, or thinking clearly, or doing one’s

part in a group projects. The cumulative impact of teachers does have an influence on the

formation of an individual’s sense of ethics.

Culture
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Our cultural values are critical as far as moral lessons are concerned. Culture can be defined

as the unspoken rules and assumptions about how we do things around here. When

considered in this way, culture is subtle because it is unspoken. Most organizations do not

have explicit rules that dictate who shall be called by their first name and who shall be

addressed more formally. They do not have explicit rules about profanity at work, or the

degree to which client information is kept confidential, or the kind of jokes that are

acceptable or unacceptable in the workplace. Although none of these things is formalized,

there often are unspoken rules. An observer of the behaviour of workers at a construction site

and at a law firm would notice immediate and profound difference in individual behaviour

and methods of conducting business. The two have different cultures. However, an

individual’s sense of ethics is shaped by the culture or cultures in which he operates.

Religion

By far religion is regarded as the most important driver of an individual’s sense of ethics.

People who were raised in a religion, even if they no longer believe or practice it, often have

the teachings of that religion as part of their sense of ethics. People who do believe in and

practice religion typically find the moral rules or dictates of their religion the most

meaningful way to answer questions about right and wrong behaviour. However, most

religious people would agree that it is not a good thing to commandeer passenger airplanes

and fly them and their passengers into building in order to avenge one’s god or to send a

religious message. Most religious people would agree that doing such things in the name of

religion is to misunderstand or misinterpret religion.

Ethics and Law

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It is not enough to simply say that our conduct is lawful. The law is the floor. Compliance

with it will be the absolute minimum with respect to the individual and business, no matter

where he or she works or sector the business operates. Thus, ethics go beyond the legal code.

This statement underscores two important points—namely, (1) that following ethical

standards is not merely the same as obeying the law, and (2) that the law may be considered

the minimum acceptable standard to which companies must adhere. Over the years, as people

have become appalled by breaches of ethics in the government and corporate worlds, it is not

surprising that they have looked to their political leaders for long-term solutions.

It is important however, to indicate that law influences people’s sense of morality. In fact,

business people often equate ethics and law; however, the two differ to some extent. For

example, businesses involved in scandals have had their executives said, in effect, “What we

did was not wrong because we complied with the law, or with Generally Accepted

Accounting Principles.” In other words, many people, at least some of the time, do not make

a distinction between what is legal and what is moral.

While ethics is a branch of philosophy, law is seen as a quite distinct field. Legal systems, or

groups of laws, have existed for thousands of years. Law is a function of government, in that

laws are made, changed and enforced by governments. Law apply in specific places and have

their standing from the government of countries, states or other political entities or group of

entities. Typically in a democracy, the constitution or other foundational document provides

rules for how laws are to be made and changed. Directly related to laws are regulations.

Regulations have the force of law, but are generally more specific and are written and

approved by regulatory agencies within the framework of the elected government. Regulators

are generally appointed rather than elected. Regulations are intended to provide detail

specifying how broader laws apply to specific cases and examples. Most businesses are

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subject to several regulatory agencies and must comply with detailed regulations in such

matters as taxation, financial disclosure and product safety. All businesses are also subject to

a variety of laws and regulations in matters relating to employment.

Why ethics is not the same as law

First, law-makers are often not noted for their refined moral sensibility. For example,

students, scholars and professionals would not subscribe to the notion that either national or

local legislators make up their moral code. This should not be surprising, for in a democracy,

candidates for office generally do not claim to be the most virtuous or the most morally

sensitive individuals in the country. This is not however, to say that most politicians and

regulators are liars and thieves. It is merely to say that they are not chosen and kept in office

because of their moral sensitivity.

Finally, it is dangerous to equate law to ethics because laws change, while many people

expect at least the basics of morality/ethics to be unchanging. For example, in some parts of

the world prostitution is legal and even same sex marriage. While the legal status of an act

can change from country to country, it is difficult to argue that prostitution or same sex

marriage is moral or ethical in one country and immoral or unethical in the next.

It is Ethical to Follow the Law

Although it is dangerous to equate law to ethics, it is ethical to follow the law. This is because

all of the major systems of ethics include an assumption in favour of obeying the law. Note

that this is the assumption, not an absolute mandate. This reasoning is premise on the

following: (a) Laws are made to reflect and protect the values of a society, at least in a

democracy. If they do not reflect society’s values, new law-makers are elected by the people.

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(b) Ethics is about values. If a society’s values the individual’s rights to speak his or her

mind, its laws will tend to protect free speech, and most censorship will be considered illegal.

Ethics and Managers

The social responsibility of business is to increase its profit or effectiveness. Friedman, the

famous Nobel Prize-winning economist noted that the role of the manager is to act as the

agent of the owners of the business that he or she managers, namely, the stockholder.

Specifically, Friedman indicates, the manager as an agent of the owner:

...has direct responsibility to his employers. That responsibility is to conduct the

business in accordance with their desires, which generally will be to make much

money as possible while conforming to the basic rules of society, both those embodied

in law and those embodied in ethical customs (Friedman, 1970).

Earlier ethics was defined as the discipline that studies interpersonal or social values and the

rules of conduct that derives from these values, certainly the decisions of managers do affect

other people, including their subordinates, others within their organizations and various

people beyond the organization, including but not limited to the stockholders or owners.

Managerial ethics, then, must of necessity examine the impacts of the actions of managers.

This examination cannot be limited to the compliance or non-compliance of those actions

with laws and regulations. Several studies on leadership exist, but almost none of it refers to

complying with the law as a characteristic of a successful leader. It is assumed that good

leaders do not run afoul the law, but it is not at all assumed that compliance with the law is

the same as good leadership. Not all managers are leaders, but both managers and leaders

have interaction with others as a significant part of their job.

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Psychologists and social theorists tell us that individuals have trouble dealing with

inconsistency. It is hard for the same person to be warm and nurturing with spouse and

children, and cold and impersonal with subordinates at work. The ethical or virtuous person,

according to Aristotle, is the person who shows consistency and moderation in all their

dealings with others, be they family or friends, or peers, or subordinates.

Factors that Affect Ethical Behavior

1. Stage of moral development (Kohlberg) – Stage one – pre-conventional, rule

following. Stage two – Conventional, living up to expectations of others. Stage three –

Principled, following self-chosen path and respecting others.

2. Individual characteristics – values, knowing right from wrong. Ego strength, the

power of your convictions. Locus of control, an internal locus of control means that

you believe you control your own destiny, an external locus of control means you

believe you have no control.

3. Structural factors – an organisation’s structure affects people’s ethical behaviour

(e.g. clear ethical statements, policies and regulations).

4. Organisational culture – this is made up of the values and norms shared by people

working for an organisation. A strong culture will exert more influence than a weak

one.

5. Issue intensity – this refers to how important an issue is. Something not so important

(e.g. making private local calls) has different ethical implications to something very

large (e.g. embezzling GH¢1 billion). The act is the same (theft) but the intensity of

the issue is different.

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 Ethical Reflection

A story by Heinz:

A woman was near death from cancer. One drug might save her, a form of radium that a

druggist in the same town had recently discovered. The druggist was charging $2,000, ten

times what the drug cost him to make. The sick woman’s husband, Heinz, went to everyone

he knew to borrow the money, but he could not get together about half of what it cost. He

told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later.

But the druggist said “no.” the husband got desperate and broke into the man’s store to steal

the drug for his wife.

1. Should the husband have done that? Why or why not?

2. To what extent can you say that the act by Heinz was ethical?

3. To what extent can you say that Heinz was constrained by law?

4. Using this case, differentiate between ethics and law

Questions

1. Identify and discuss two reasons why business ethics is relevant for business

professionals

2. Briefly discuss the statement that “Ethics and law are not the same”.

3. Following the law is ethical. Explain with illustration(s)

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CHAPTER TWO

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 THEORIES OF ETHICS

Ethical issues are better explained from a theoretical perspective than from a layman point of

view. This chapter addresses the various ethical theories and how they facilitate our

understanding of business ethics and the implications of manager’s decisions. At the end of

this chapter, students should be able to:

 Identify the various ethical theories discussed in the chapter

 Differentiate between teleological and deontological theories of morality

 Explain the utilitarian theory of ethics with focus on act and rule utilitarianism

 Explain the different types of teleological theories

 Explain Kantian theory of ethics with focus on universalizing maxim and persons as

ends

Introduction

Throughout the history of philosophy, thinkers have addressed the question of what makes an

act moral or immoral. In this book, the terms “moral” and “ethical” will be used

interchangeably. Ethical decisions are usually viewed from a theoretical perspective. Thus, a

manager’s decision to terminate an individual’s employment may be justified using the

utilitarian theory. This chapter addresses theoretical issues as they relate to ethics in business.

Is there a single view of right or wrong? These questions can be complex, since there is no

single view in general ethics of what makes something right or wrong. People or

businessmen/women give explanations or reasons to explain their decisions and behaviours

and this is expressed in ethical criteria normally grounded in ethical theories (Victor &

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Cullen, 1988). The theory-based criteria contain information about the recommended action

and about the reasons for that recommendation. These criteria comprise the logic for action,

"the underlying assumptions, deeply held, often unexamined, which form a framework within

which reasoning takes place" (Horn, 1983). Broadly speaking, ethicists put ethical theories

under two main categories: Teleological and Deontological ethics.

Teleology

Teleology is a philosophy of science that promotes a focus on outcomes and consequences

when studying various phenomena (Kagan, 1997). As such, theories based on this approach

to the study of ethics are sometimes referred to as consequential theories. The notion behind

such theories is that the morality of behaviour can be judged by the consequences of that

behaviour. Specifically, a consequentialist view of ethics holds that the goodness or badness

of a proposed action is evident only in the consequences of that action: whether a lie is good

or bad depends upon the consequences of that particular lie at the time. Utilitarianism, for

example, is a consequentialist theory, in that it seeks to maximize the net happiness for

everyone affected by a particular action (‘the greatest good for the greatest number’, as it is

sometimes expressed).

Teleological Theories

Consequential Theories

Many theorists contend that the moral rightness of an action can be determined simply by

looking at its consequences. If the consequences are good, the act is right; if the
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consequences are bad the act is wrong. Consequential theories measure the morality of

actions on the basis of their non-moral consequences (Barry, 1979). Simply put, actions

should be judged in terms of their consequences. Consequential theorists therefore determine

good or bad action simply by looking at the ratio of goodness or badness the action produces;

and eventually choose the course of action that would seem to produce the most good. Under

consequential ethics, egoism, utilitarianism and situational ethics will be discussed.

Egoism

Egoism is a branch of teleology, which focuses on the consequences of behaviors on the self

as opposed to others (Tsalikis & Fritzsche, 1989). Egoism is a moral act which promotes the

individuals best long-term interests. In determining the morality of an action, egoists use

their best long-term advantage to measure the action’s goodness (Barry, 1979). Egoism

measures the morality of a behavior by the extent to which the behavior promotes one’s own

interests. Under this approach, an action that promotes a person’s knowledge and self-

actualization is considered ethical, whereas an action that does not is considered unethical.

There are a few variations of the theory; one school of thought views two forms of egoism

and these are psychological egoism and ethical egoism. Psychological egoism is a descriptive

theory of human behavior that holds that people are naturally programmed to behave only in

their own self-interest. Ethical egoism is the normative theory whereby people ought to act

exclusively in their self-interest (Reidenbach & Robin, 1990; Jones et al., 2007). Thus, the

moral principle of ethical egoism suggests that an act is ethical when it promotes the

individual's long-term interest (Shultz & Brender-Ilan, 2004; Jones et al., 2007). Note that it

is possible for people to help others, follow the rules of society, and even grant gifts if they

believe that those actions are in their own best interest.

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 Some moralists also distinguish between two kinds of egoism: personal and impersonal.

Personal egoists claim that they should pursue their own best long term interests and

impersonal egoists also claim that everyone should follow their own best long term interests

(Barry, 1979). Hinman (2007) on the other hand sees three categories of ethical egoism;

personal ethical egoism which believes that “I am going to act only in my own interest, and

everyone else can do whatever they want.” Individual ethical egoism also believes that

“everyone should act in my own interest.” and universal ethical egoism contends that “Each

individual should act in his or her own self-interest.” Ethical egoists sometimes maintain that

if each person took care of himself/herself, the overall effect would be to make the world a

better place for everyone.

Utilitarianism

The theory most commonly associated with the teleological approach is known as utilitarian

theory. Utilitarianism is the philosophical approach which says that the moral act is the one

that creates the greatest happiness or good for the greatest number of people. To Rachels

(1993), the belief that actions should be appraised in terms of their effect on happiness is

utilitarianism. In Barry’s (1979) opinion utilitarianism is the consequential doctrine that

asserts we should always act so as to produce the greater ratio of good to evil for everyone

and therefore emphasizes the best interests of everyone concerned. Lewis (1991) defines it as

society’s net benefit over harm. To Hinman (2007) the fundamental imperative of

utilitarianism is to always act in the way that will produce the greatest overall amount of good

in the world. Conversely, behaviour is deemed to be unethical if it either does not maximize

the benefit individuals receive, or produce more benefit for some people than for others. In

terms of organizational policies, utilitarianism holds that rules are ethical if they promote

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behaviours that maximize the benefit for all members and other stakeholders, and are

unethical if they do not (Sherwin, 1983; Tsalikis & Fritzsche, 1989).

Utilitarianism has been linked to the modern welfare state which has found some special

interest for students of philosophy and society. It has also been associated with reform or

social improvement (McPherson, 1970). Hosmer (2003) contends that in applying the

utilitarian theory to the outcome of an action or decision, the principle is that everyone should

act to generate the greatest benefits for the largest number of people. The ultimate goal of

utilitarianism is not the happiness of the individual, but the happiness of society (Rossouw,

2002). Are the greatest happiness and the greatest good the same thing? Broadly speaking,

utilitarians answer yes.

Utilitarianism focuses on ends and not on the means required to achieving those ends, and it

takes into account all present and future benefits and harms that accrue or might accrue to

anyone who is affected by the action, including items that may be difficult to evaluate

accurately (Schumann, 2001). According to the utilitarian moral principle, an act is morally

acceptable if it produces the greatest net benefit to society as a whole, where the net social

benefit equals social benefits minus social costs (Bentham, 1789; Mill, 1957; Brandt, 1979;

Rachels, 1999; Velasquez, 1998; Schumann, 2001; Cavanagh, 1981).

The primary way of assessing “the greatest good for the greatest number” is by performing a

social cost/benefit analysis. All possible benefits and costs of the assessed act are listed and

summarized as the net of all benefits minus all costs. If the net result is positive, the act is

morally acceptable; if the net result is negative, the act is not acceptable. Utilitarianism seems

to have been accepted by business people, which may in part be due to its tradition in

economics. The ensuing economic philosophy of capitalism, alongside Adam Smith (1776),

provides a rich traditional heritage to the utilitarian concepts. Capitalist systems, by providing

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the greatest material good for the greatest number, get to be considered ethical from the

perspective of the traditional economic philosophy. It should be noted here that the utilitarian

analyses of moral philosophers extend beyond material good to the much broader concept of

utility, from which the term utilitarianism is derived.

The theory of utilitarianism is associated with two English philosophers: Jeremy Bentham

(1748-1832) and John Stuart Mill (1806-1873). In expressing the theory of utilitarianism,

Bentham said:

Nature has placed mankind under the governance of two sovereign masters, pain and

pleasure. It is for them alone to point out what we ought to do, as well as to determine

what we shall do. On the one hand the standard of right and wrong, on the other the

chain of causes and effects, are fastened to their throne.

He proceeded to define the principle of utility as follows:

By the principle of utility is meant that principle which approves or disapproves of

every action whatsoever, according to the tendency which it appears to have to

augment or diminish the happiness of the party whose interest is in question: or, what

is the same thing in other words, to promote or to oppose that happiness.

In his contribution to the theory of utilitarianism, John Stuart Mill’s posited:

The creed which accepts as the foundation of morals, Utility, or the Greatest

Happiness Principle, holds that actions are right in proportion as they tend to promote

happiness, wrong as they tend to produce the reverse of happiness. By happiness is intended

pleasure, and the absence of pain; by unhappiness, pain, and the privation of pleasure. To

give a clear view of the moral standard set up by the theory, much more requires to be said; in

particular, what things it includes in the ideas of pain and pleasure; and to what extent this is

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left an open question. But these supplementary explanations do not affect the theory of life on

which this theory of morality is grounded – namely, that pleasure, and freedom from pain, are

the only things desirable as ends; and that all desirable things (which are as numerous in the

utilitarian as in any other scheme) are desirable either for the pleasure inherent in themselves,

or as means to the promotion of pleasure and the prevention of pain.

Utilitarianism as a Result Oriented Ethical Theory

Although it could be interesting to actually sit back and think about what our ultimate ends

might be, in most cases we make decisions based on more immediate concerns – what

philosophers would call instrumental or intermediate concerns. For example, a manager

may add six new salespeople because he/she is persuaded that the additional revenue they

generate will not only cover their own costs, but also provide an increment of profits to the

company. Also, we choose to go to the dentist and have a root canal performed not because

we enjoy pain as an ultimate end, but because the temporary pain of the dental procedure will

result in a longer pain-free period afterward.

When we decide on the morality of an action based on the results that will be achieved, we

are engaging in utilitarianism. This is different from choosing an action because it is simply

the right thing to do. Thus, the charge is sometimes raised that utilitarianism is wrong

because it is based on the notion that the end justifies the means.

For too many people, the statement “the end justifies the means” is the same as “a good end

justifies any means.” Increased profit for my business is a good end, but it does not justify my

employing eight-year-old children for twelve hours a day and paying them a dollar an hour. It

also does not justify ignoring safety concerns and selling a product or service with a high

likelihood of harming or killing my customers. However, if my employees are seriously

overpaid and my company is about to go bankrupt due to uncompetitive pricing caused by

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labour costs, reducing either wages or staff, or both, may well be justified in order to keep the

company operating and prevent all employees from losing their jobs.

In terms of organizational research, both egoism and utilitarianism (branches of teleological

ethics) are problematic in that they focus on ends as opposed to means (Tsalikis & Fritzsche,

1989). That is, a behavior might achieve an outcome that is beneficial for all stakeholders of

an organization, but accomplish the outcome in a way that is detrimental to long-term well-

being, for example. It can also be argued that a utilitarian outcome is not always a fair

outcome in that some people may contribute above-average inputs to a task, but receive equal

shares of the resulting benefits.

Types of Utilitarianism

Act utilitarianism

Is the theory stipulating that the morally right act is the one that produces at least as much

overall happiness in the circumstances as any alternative act. This means that when deciding

which act would be ethically right, a person must investigate the reasonably foreseeable

consequences of the different possible acts she could perform; the act that would produce the

most overall happiness is morally right and must be carried out.

Example: this scenario involves two parties and two alternative courses of action. Consider a

request made by your aunt in the local retirement home that you visit her one evening. She

can be a difficult person and you do not particularly like visiting, though you know she is

lonely and your visits do her a world of good. If you agree to her request and visit her, she

will be very happy, but you will miss your favourite television show, causing you to

experience a certain amount of unhappiness. If you decide not to visit her, she will be

extremely disappointed, but you will be able to watch your television programme, gaining

some happiness (though a twinge of guilt takes away just a bit of that happiness). Act-

22
utilitarianism requires this sort of thinking – analyzing the effects on the happiness of the

individuals involved for each alternative course of action. The morally right action is the one

producing the most overall happiness. The following chart captures these various effects:

Visit Do Not Visit

You -10 +8

Aunt +15 -20

Total +5 -12

Notice that the amount of happiness gained or lost is quantified. However, in line with the

formal definition of act-utilitarianism provided here, it should also be pointed out that in the

case where there is a “tie” in that two alternative courses of action would produce the most

happiness, either of the two acts may be performed. This sort of possibility is covered by the

specification that the right act would produce “at least” as much overall happiness as any

alternative act. If, for example, the total effects on happiness would be identical for ACT X

and Act Y (if, say, each would produce a net gain of 5 units of happiness), then either of

those two actions would be morally permissible. To say that an act is morally permissible, is

to say that it is allowed but not required; the performance of the act is not morally wrong, but

neither is the failure to perform it. However, performing one of those two acts, instead of Act

Z (that would, say, produce an overall gain of only 2 units of happiness), would be morally

required.

Act-utilitarianism has been endorsed by philosophers because (a) it assesses the morality of

actions in terms of the consequences of those actions, and utilitarians suggest that this is

commonsensical, that what we mean by the morality of actions is just the consequences that

those actions might bring about. Thus, in what other ways, they ask, could morality be

assessed except by appealing to the consequences? (b) It is relatively simple and (all things

considered) easy to apply; the principle “maximize overall happiness” is straightforward.

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This is important, according to utilitarians, because in areas of applied ethics (such as

professional ethics), it is desirable to have a basic moral theory that can be applied to real-life

cases without undue difficulty. (c) act-utilitarianism possesses the characteristics that are

important for a viable moral theory.

Rule-Utilitarianism

Act-utilitarianism calls for the maximization of overall happiness in the circumstances. Rule-

utilitarianism differs in that it calls for an analysis that extends beyond the immediate

circumstances. Instead, it calls for a closer look at the long-term consequences that would be

generated by performing the act in all relevantly similar situations. More formally, according

to rule-utilitarianism, the right act conforms to the rule which, when followed, produces at

least much overall happiness over the long run as any alternative rule. More broadly, that rule

must then itself be a member of a set of rules that would produce at least as much overall

happiness as any alternative set.

The claim made by rule-utilitarianism is that their theory will generate rules, and will thus

prescribe actions in accordance with those rules, that are much more in line with our

intuitions. For example, the rule requiring people to keep their promises is likely justified by

rule-utilitarian considerations. A society in which people can rely on others to keep their

word will be happier than a society in which promises are broken on a regular basis. Keeping

one’s word will thus be a fairly stringent moral obligation under rule-utilitarianism; it is a

rule that would produce at least as much happiness as any alternative rule pertaining to

promise-keeping, and that rule can likely be integrated into a set of rules that would

maximize overall societal happiness. Thus, when a lawyer agrees in principle to a settlement

in a lawsuit and then goes back on that agreement just before the schedule trial date (in order

to cause confusion on the part of the opposing lawyer), rule-utilitarianism could perhaps be

used to show that such an act is unethical.

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Conclusion

Criticizing utilitarianism is not enough to demonstrate that it should not be used in ethical

decision making. In addition to the criticisms, a defense of a “better” theory must be

provided. It is much easier to criticize than to defend. (Political campaign advertisements are

examples of this; the faults of the other candidate are often highlighted rather than the merits

of the candidate himself.) Utilitarians sometimes acknowledge that their theory is not perfect,

but they challenge their critics to point to a better one. After all, they say, there is not perfect

moral theory; rather, it is the best moral theory that is sought. The following theories are

attempts to provide alternative to utilitarianism as a foundation for ethical decision making.

Cost-benefit analysis as a form of Utilitarianism

Cost-benefit analysis is a utilitarian approach to evaluating proposed expenditures in business

or in government. The basic concept behind cost-benefit analysis is that spending money,

time and effort might be justified by the results to be achieved, but it might not. Since this

sort of analysis is future-oriented, it will necessarily be less precise than analysis of

expenditures that have already been made and results that have already been achieved.

Cost-benefit analysis conceptually underlies the whole process of budgeting. It does not make

good business sense to plan to spend money, under either expense or capital budgets, that will

not yield a benefit at least equal to the expenditure. The budget process is often conducted

with a good deal of politics involved and, as the saying goes; the devil is in the details.

However, when money could be spent in one of several ways, but not all of them, then

aiming to get the biggest bang for the buck is not really different than aiming to create the

greatest good for the greatest number, at least in principle.

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While cost-benefit analysis is utilitarian in spirit, it is narrower in scope. Whether in business

or in government, the most common benefit weighed against costs is financial in nature. If a

project or an addition to staff will either generate enough revenues or reduce enough future

financial cost, then it is approved. The principal metric used in cost-benefit analysis is

efficiency-will the expenditure in question generate the most output with the least input?

While it might legitimately do so, cost-benefit analysis does not always take into account

impacts beyond expenses and revenues. To give one example frequently raised in business

ethics textbooks, a cost-benefit analysis of a plant closing in a small town might not address

the impact on the town’s unemployment rate or tax base, while in utilitarian analysis would

also factor in these issues.

Cost-benefit analysis, by its nature, stresses quantifiable factors. However, projects or

expenditures are sometimes approved on the basis of necessity rather than amount of dollar

benefits. One relatively small hospital group with which I am familiar recently decided to

spend tens of millions of dollars integrating its more than twenty software systems so that

medical and financial information would be available to everyone involved with a patient

from pre-admission medical work-ups to post-discharge follow-ups. The executives of the

hospital group felt that they simply could not continue to provide adequate service without

such systems integration. The project was approved on the basis of necessity rather than of

quantified savings or additional revenue and profits. It appears that, in deciding to spend this

amount of money on systems integration, they were aiming in a broad sense to achieve the

greatest good for the greatest number.

Deontology

One school of thought emphasises duties, things that must be done (or refrained from)

irrespective of the consequences. This deontological point of view holds that goodness or

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badness is evident only in the action itself: that, for example, lying is bad because it is bad in

itself. Thus, deontological approach to the study of ethics differs from teleological

approaches in that it does not focus solely on consequences when assessing the morality of

actions. Instead, this approach places more emphasis on the extent to which a person’s

decisions and behaviours conform to existing standards of morality such as rules and rights.

Deontology deals with actions, which are inherently right or wrong, without taking their

consequences into account. In order to define the rightness or wrongness of a given

alternative of action, we do not have to know its probable outcomes. The foundation of moral

duty is an “a priori” belief. Reason can reveal the basic moral principles. In order to define

what I should do, I must consider what all rational beings must do. Moral laws are valid for

all rational beings.

The deontological school of thought focuses on the preservation of individual rights and on

the intentions associated with a particular behaviour, rather than on its consequences.

Deontologists look for conformity to moral principles to determine whether or not an action

is ethical. They also feel that individuals have certain undeniable rights, which include

freedom of conscience, freedom of consent, freedom of privacy, freedom of speech, and due

process.

Both duties (deontological) and consequences (teleological) are plainly important in the way

we deal with ethical issues in everyday life. Unfortunately, however, they are very different

ways of reasoning, which can lead to contradictory outcomes in some cases. An exclusively

duty-based view of ethics, for example, must sooner or later run into problems such as

absolutism, or the difficulty of deciding which duty should take precedence over others in a

particular situation. If, for example, both lying and killing are held to be inherently wrong, is

it acceptable to lie in order to avoid a killing? And whatever answer is given, how do we

know?
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The approaches of two leading deontologists will be discussed in this course. The first is a

strict deontology described by Immanuel Kant (1724-1804), who is credited with providing

the details of the theory. In fact deontological ethics is sometimes thought to be synonymous

with “Kantian ethics”, though this equivalence is misguided, one can believe that deontology

is the best moral theory without agreeing with the specifics of Kant’s claims. This was true of

Sir W.D. Rose (1877-1971), a more moderate deontologist whose views would be discussed

in this text.

Kantian Theory of Ethics/Morality

The purpose of a moral theory, Kant is to provide a way of discovering whether certain

actions or policies are ethically right, wrong, or permissible. Example, Martell Welch, Jr.

attacked Deletha Word because she accidentally dented his car. He stripped and beat her in

broad daylight on the Bell Isle Bridge in Detroit, Michigan. While he beat her, over forty

people watched him and, according to reports, at times cheered for him. No one on the bridge

offered any kind of assistance to Word, not even a phone call for help. To escape from

Welch, she threw herself over the side of the bridge and drowned. It seems to us, according to

our moral vision that Welch’s actions were ethically wrong, and it also seems that the other

people on the bridge were wrong for failing to act on her behalf. A moral theory, though, is

supposed to test these sorts of intuitions to see if they reflect moral truth; it is supposed to

clarify things, so that we can determine whether our initial moral vision is accurate.

From Kantian perspective, the determination of whether Welch’s action was morally right,

wrong or permissible requires carefully consideration of the act under the following thematic

concepts. According to Kant, the answer to each question is a “proposition” of morality and a

revision of these propositions leads to a better understanding of the theory and how it works.

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The first question, which is very basic, is: what makes a person morally good? Kant posits

that the intention (motive) one chooses makes one morally good. When we judge people as

morally good or bad, we do not look at whether they happen to achieve their goals. People

often fail to accomplish set goals through no fault of their own. You may set yourself the

general goal of helping others, and this may mean that when the man next to you has a heart

attack, your specific goal is to save his life. It may be, however, that despite your best efforts

to save him, the man dies nonetheless. It should be clear that the man’s death does not mean

you are morally bad. Instead, it is more plausible to claim that you are morally good because

your goal – your intention – was to save his life. This is the idea behind Kant’s first

proposition; to assess a person morally, we must look to his intentions.

Next is what sort of intentions makes one morally good? This leads to Kant’s second

proposition of morality. Specifically, Kant indicates that there is a right and a wrong way to

answer this question. The wrong way pertains to happiness. It is a fact of human nature that

people are inclined to act so as to make themselves happy. Perhaps you have the intention of

doing well in school, and this is because you have the yet further intention of being happy.

This is a perfectly reasonable way of describing a person’s structure of intentions. Kant

points out, however, that being happy is not necessarily the same thing as being a morally

good person. After all, some things that make you happy may be unethical. Therefore, it is

not the intention of bringing about happiness that makes one morally good. Instead, it is

acting with the intention of being dutiful – of acting from the motive of duty itself, and not

from the (misguided) motive of bringing about happiness. Stated formally, Kant’s second

proposition is that a morally good intention (the possession of which makes a person morally

good) is the same as acting from motive of duty.

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The second proposition (acting from motive of duty) gives rise to a third question: what

exactly, does this mean? What does it mean for a person to intend to act from the motive of

duty? Kant’s answer which is his third proposition is that acting from the motive of duty is

acting out of respect for the moral law. The moral law to Kant is that which morality

requires. Specifically, the moral law is what morality itself (objective moral truth) requires of

us, and acting out of respect for the moral law means not allowing anything-not happiness,

not fear, not love, not even government’s law – to get in the way of doing what is morally

right. This commitment to doing what is right, and being willing to sacrifice happiness along

the way, is what Kant means to capture by the notion of “respect” in this third proposition.

In brief, Kant’s views about morality or ethics is that a person is morally good (performs

moral actions) if he acts from a morally good intention, and an intention is morally good if

the motive is duty itself, meaning respect for the moral law. First, for Kant, doing the right

thing can be a somewhat complex operation. Acting from the right motive is crucial. Some

Kantians take this to mean that acting from the right motive is a necessary part of performing

the right act-that one cannot perform the right action unless she acts out of respect for the

moral law. Others believe that the two notions are separate, that one must perform the

morally right action, and in addition, must do so with the right motive (respect for the moral

law). Against this backdrop, it is possible to perform the right action without doing so out of

respect for the moral law. Secondly, appeal to consequences to Kant, is irrelevant. Although

certain aspects of Kantian ethics incorporate consequences, the appearance is deceptive.

Third, in performing a morally right action, one’s inclinations have to be ignored. Inclinations

refer to intuitions, desires, emotions, or any motivations other than respect for the moral law.

Kant believes that when determining the ethical course of action, inclinations can get in the

way; they can skew one’s thinking and lead to misguided conclusions about what is ethical.

Inclinations should thus be set aside. Despite this elucidation about a morally right action, we
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are unable to determine what this moral law is? To understand this, Kant proposed an answer

in his famous moral theory, the categorical imperative.

Kant’s Categorical Imperative: Universalizing Maxims

In ethics, moral theories serve as tools for sharpening our moral vision, for helping us to

better see things (ethically) as they really are (objectively). The tool of Kantian deontology

focuses on motive, but the more complete account of theory entails categorical imperative,

which serves two purposes. First, it is a command; it instructs us what to do. In fact, it tells us

what we must do if we are to act ethically, and in this way it tells us what the moral law really

is. Second, it is a mechanism for testing actions or rules to see whether they are ethically

right, wrong, or permissible.

First, the theory is premised on the idea of universalizing maxims. In Kant’s words, the

command is, “Act only according to that maxim by which you can at the same time will that

it should become a universal law.” Putting into context, if we asked Martell Welch why he

beat Deletha Word, he might respond by saying, “she made me angry, and beating her made

me feel better.” His motive in some sense pertains to alleviating the anger she caused him.

The second step is to use this motive to ascertain the person’s maxim. A maxim is a more

general type of motive; it is an individual’s reason for acting, but it is expressed as a general

rule that applies to all future actions. Welch’s motive in the specific case can be expanded

into the following general guiding rule: “Whenever anyone angers me, I will beat that person

so that I can feel better.” This is Welch’s maxim; it is the general rule that he was following

in this particular case. The third step would be to universalize this maxim, which means

restating it not just for the individual but for all people (or, as Kant says, for all rational

beings). The universalized maxim would then be: “Whenever anyone angers any person, that

person who is angry will beat the person who caused the anger.” The fourth step is to assess

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whether this universalized maxim can be a moral law. If this universalized maxim is

consistent – if it can be practiced in the world without any inconsistency – then it can be a

moral law. This would mean that the original action performed is not wrong. If, on the other

hand, the universalized maxim generates a contradiction and is thus inconsistent, then the

original act performed is wrong and may not be performed. In the example, a natural result of

the universalized maxim is that there would be a lot of beatings occurring; it is a natural fact

that people get angry from time to time, and so numerous beatings would be expected to

follow. When people get beaten, they often experience anger (among other emotions), and

herein lies the inconsistency.

Following from the earlier example, Martell beat Deletha because she made him angry and he

wanted to feel better. Thus, on the one hand, he wants his anger to be alleviated. The maxim

underlying his action, however, generates a world in which more anger would come about.

This would be true for him as well, since the people he angers would beat him, causing him

to experience anger at being beaten. In short, he is seeking to lessen his anger, and this is

straightforwardly inconsistent. Another way to characterize the situation is to say that Martell

is acting on a maxim which, when universalized would be self-defeating, since it would

negate the very goal he is trying to accomplish (anger alleviation).

Simply, an act can be said to be morally right in the opinion of Kant based on the following

four basic steps (a) ascertain the individual’s motive; (b) ascertain the individual’s maxim; (c)

universalize the maxim; and (d) assess the universalized maxim for consistency.

Categorical Imperative: Persons as Ends

According to Kant “Act so that you treat humanity, whether in your own person or in the

person of any other, always as an end and never as a means only”. In this context, the

difference between means and ends is closely related to the difference between people and

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things. An inanimate object-a “thing”-has value only insofar as someone values it; it does not

have value “in itself,” meaning it would have no value at all without someone to value it. It is

therefore permissible to use things as I see fit in order to accomplish my goals. A computer

for example, is a thing and so has no value in itself. Therefore, since you own your computer,

you can use it as a means to your ends-as a tool for helping you achieve what you want.

Treating your computer as a mere stepping stone in this way does not morally wrong the

computer, for it is not the sort of thing that can be wronged. You can even choose to throw it

out the window if you get frustrated with it (as long as no one outside the window will be

injured).

In all these ways, people are different. People do not need to be valued by others in order to

have value. This formulation underscores Kant’s belief that every rational creature has

inherent worth. This worth does not result from any quality other than the sheer possessing

of rationality. Rational human being possesses what Kant termed an “autonomous self-

legislating will.” In other words, they can evaluate their actions, make rules for themselves,

and direct their conduct according to these self-imposed rules. Kant sums his “categorical

imperative” as “one ought never to act unless one is willing to have the maxim on which one

acts to become a universal law”. To Kant (1959) therefore, good will, and only good will, can

be universalized.

Again Kant indicates that you may not treat another person as a mere means. You may not

simply use another person in an effort to further your own goals. People, unlike computers,

are not mere stepping stones and may not be treated as such. This is Kant’s idea behind the

moral command that we are always to treat people as ends and never as means only; we must

always recognize that people are valuable in themselves (are ends in themselves). He also

uses the terminology of respect and dignity to capture this idea; we are always and

everywhere to demonstrate respect for persons, to recognize the inherent dignity they possess

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(because of their rational capacities). Kant also makes clear that this is why all people are

moral equals. Each person is an end in himself or herself to the same degree as all other

persons, and so no one is more valuable – more morally important –than anyone else.

Informing our views

Nonetheless, duties and principles clearly do inform our views of how people should treat

each other at work. An exclusively consequentialist view of ethics also entails

methodological problems of forecasting reliably what the consequences of an action may be

and of deciding how to measure those consequences. Some form of utilitarianism can be very

unjust to small minorities, by allowing their unhappiness (i.e. as a result of some proposed

action) to be offset by the increased happiness of a much larger number. Again, however, we

can hardly deny that our assessment of the likely consequences of different actions plays a

part in our view of acceptable and unacceptable behaviour in an organization.

Case 1 – Off shoring example

A UK-based company thought about an opportunity to ‘offshore’ part of its operation to a

lower-cost Anglophone country. The shareholder-centred view would place emphasis on the

unit cost savings to be achieved by moving the operation to a lower-cost area, provided that

the required quality of service can be maintained. Other things being equal, lower unit costs

obviously allow higher margins and improved rewards to shareholders. However, the

assessment would also take into account the possibility of additional risks to be managed,

such as security and quality control issues. Furthermore, this view would also consider the

34
competitive implications of the decisions: if other suppliers all outsource and reduce their

prices to customers, a decision not to do the same could damage the company. On the other

hand, being different could be a viable competitive stance for one or more competitors,

particularly if some customers are concerned about reduced quality of service from off

shoring: at one point, NatWest in the UK seemed to take this stance in its advertising.

A deontological approach to the ethics of off shoring would focus on aspects of the proposal

that might be in breach of clear principles and duties. While no business can reasonably

accept a general duty to keep existing employees on the payroll for ever, a contemplation of

duties might cause a company to do as much as possible to soften the impact of the job

losses, including the possibility of internal transfer, retraining, outplacement and more-than-

minimum redundancy packages. A utilitarian analysis would seek to identify all who would

be affected- anywhere in the world – by the proposed off shoring decision and then assess the

impact (positive or negative) on each person (or, more realistically, group). This would allow

a sort of “trial balance” of the consequences to be drawn up and an evaluation of the net

impact on aggregate happiness. Necessarily in this method, the reduction in happiness for

others, such as those who are made involuntarily redundant, is offset by the extra happiness

created for some-those who get offshore jobs, for example. Obviously, this is of little comfort

to the former group, which illustrates one of the important criticisms of the utilitarian

approach.

Ethical decision-making at work

How, then, are ethical choices to be made by people working for organizations? No simple

and universal answer is available – ethical awareness is something that can be cultivated and

the different perspectives will often help to shed light on a particular dilemma. Some
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perspectives may appear to be better suited to particular situations: whereas, for example, it is

difficult to avoid some sort of consequentialist component in thinking about how a company

should act, it is also clear that duty-based (or ‘moral compass’) arguments must also weigh

heavily in thinking about the ethical treatment of people such as employees. The German

philosopher Kant’s view that we should always treat other people as ends in themselves and

never simply as means is surely an important principle for decent human resource

management and one that would often be seen as more important than the prospect of short-

term gain.

Personal integrity and individual values are important elements in ethical decision-making at

work, but the increasingly common company, professional or industry codes of conduct may

also provide support and guidance. This is not to say that these ethical ‘resources’ will always

provide clear and comfortable guidance – sometimes, people in organizations will experience

tension between conflicting demands of, say, their own personal values and the demands

placed on them by their organization. If these conflicts become intolerable and cannot be

resolved through normal means, then an individual may decide to become a ‘whistleblower’

in the public interest, by taking the high-risk approach of placing the problem in the public

domain for resolution. Code of conduct can help reduce the risk of painful situations like this

by providing a published set of values to which the individual can appeal, rather than taking

the risk wholly personally.

Ethical Reflections

Case 1:

Imagine that you are an office manager in a law firm. Your responsibilities include

scheduling the only two administrative assistants, Tom and Sue. (You must make sure they

36
do not take the same lunch hour or schedule the same week for vacation, for example.). Next

Monday is a holiday, and you know from past experience with this holiday that this coming

Thursday and Friday will not be busy at all; the lawyers at this firm like to take this

opportunity for an extended weekend. Thus, giving each administrative assistant an extra day

off, one on Thursday and one on Friday, would cause no problems at all in the firm and

would be a nice gesture. But critics of act-utilitarianism argue that in this sort of example a

more detailed analysis is needed. Imagine that Tom enjoys days off, but only moderately, he

might do laundry or catch up on errands, but the happiness he derives from a day off is

limited. Sue, however, derives much more happiness than Tom when she gets a day off, since

she likes to go to the beach, the mountains, or into the city. So if you are the office manager,

do you necessarily give both Tom and Sue one day off apiece?

Case 2

I imagine you are a doctor. At the moment, you are administering a routine physical

examination, and the patient is in excellent health. Your mind, however, is really on more

troubling matters; there are five patients in the critical care wing of the clinic who are

desperately in need of organ transplants. Acceptable donors have not been found, and these

particular patients are now critical; they do not have much time. As you are completing the

physical exam of the healthy patient, it occurs to you that you have a certain choice. It would

be possible for you to administer a shot to this patient that would cause him to fall asleep and

then die painlessly. (You could tell him it is a flu shot or some similar standard precaution).

Because you are very clever, you could concoct an injection that would accomplish this task

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without anyone being able to discover the true cause of death. The reason for even

considering such an act is that you are an act-utilitarian and you see the possibility of an

overall gain in happiness here. You surmise that it might be possible to take various organs

out of the healthy patient and redistribute them into the five critical patients as needed – a

liver, tow kidneys, a heart, and a lung. Because you want to be sure about the utilitarian

calculations, you quickly do some informal research and learn the following: the patient’s

organ would be excellent matches for the five needy patients (so the likelihood of successful

transplant is very high); the patient has no friends or family to speak of, as he just moved here

from the coast, “to begin with” as he says (so the unhappiness generated by his death would

not be felt by others); each of the five needy patients has children and other family members

and friends (so the unhappiness generated by the death of each would be felt by many

people). Given all of these circumstances, it seems clear that the overall happiness would be

maximized by going ahead and killing the innocent, healthy patient in order to save the lives

of the five others. After all, there would be a net gain of four lives (four saved, one lost), and

consideration of the effects on the happiness of tangential parties (friends and family) adds

credence to this conclusion.

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 CHAPTER THREE

RIGHTS AND DUTIES

This chapter addresses the issue of rights and duties as it pertains to business. Students will

be expected after this chapter to:

 Explain and differentiate rights from duties

 Identify and explain the various types of rights

 Differentiate between the various types of rights

 Identify and explain sources of rights

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  Explain Kant’s duty-based approach

 Discuss the concept of prima facie duty

Introduction

While rights are often proclaimed, and duties sometimes acknowledged, there is often a lack

of clarity in the discussion of rights and duties once it proceeds beyond proclamation and

acknowledgement. Just what are rights and duties?

Rights

A right should be understood as a “moral claim.” The first part of this definition, the

stipulation that a right is moral, is meant to indicate that it is not necessarily recognized by

any conventional system. A legal right for example, is held by a certain individual or group of

individuals just in case the government decides that the right is held. Whether or not a legal

right is moral is an open question. The second part of the definition indicates that a right is a

claim. The legal scholar Wesley Hohfeld (1919) was the first to use this terminology, and

moral philosophers have followed this practice. A claim, according to Hohfeld (1919), is a

particular type of right, one which is correlative with a duty on the part of the person(s)

against whom the right is held. Thus, my moral right not to be harmed by others is therefore

to be understood as a moral duty on the part of others not to harm me. With respect to work,

an employee’s right to safety in the workplace is held against his/her employer, since the

employer has the duty to provide him/her with a safe work environment; he/she does not hold

this right against members of the general public, since they have no such duty.

Sources of rights

There are four basic sources of rights. Some rights we have as humans, without regard to

position or citizenship, or wealth or skill. Some rights we have by law. Some rights accrue to
40
us by reason of our position. Finally, some rights have their source in contract. Rights from

each of these sources imply duties. Depending on the source of the rights, the corresponding

duty fall upon individuals or groups that might be in daily contact with us, or might be quite

remote from us.

Human Rights

Human rights is a term that is used very loosely. The concept has roots extending back

hundreds of years and is built into American legal system as a foundation. A number of

philosophers have noted that human rights can be grounded in several different theories and

that it is a sign of the strength of the argument for human rights that different approaches lead

to the same conclusions.

Legal rights

These are rights granted to citizens of a government unit by law. They are enforceable

through court systems. Some legal rights embody human rights; others do not. There is both a

legal right and a human right to life, which manifests itself in a duty not to randomly kill

people. Different jurisdictions can and do grant different legal rights, but the hierarchy of

jurisdictions is made clear by legal systems. We may well ask where governments get the

power to grant rights and impose duties. In a democracy, the standard answer is that

governments derive their power from the people. Some individuals are elected by the voting

citizens to represent them (the voters) in deciding what government shall do, and how it shall

do it.

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Social contract theory is a view in philosophy that explains government power by saying that

it is as if all the citizens yield by contract some of their individual rights in order to obtain the

benefits of social stability available only through a recognized government. The theory

further states that each of us gives up some rights to government and in return gains some

rights that we would not otherwise have. Again, rights are worthless without corresponding

duties. Citizens who have agreed to give up some rights to strengthen others also take on

some duties as part of the social contract.

Position rights

A third source of rights is position. If he has probable cause to do so, a policeman has the

right to stop a motorist, require him to get out of his car, make a physical search of his

person, handcuff him/her and take him/her to jail. These are powerful rights. It is important to

observe some overlap between legal rights and position rights. The policeman has his

authority by law as well as by position, but there is no law authorizing chief financial officer

or accounts payable clerks to disburse certain amounts of company funds.

Positions carry duties as well as rights. Employees have a duty to carry out the

responsibilities of their job. According to the rights and duties approach to ethics, an

individual’s actions will be moral if he recognizes the rights of others and observes the duties

imposed on him by those rights. Everyone has a duty not to randomly kill other people.

Contract rights

The fourth and final source of rights is by contract. Contracts are agreements between two or

more parties. The agreement of both parties to the contract initiates rights and duties spelled

out in the contract, and they will remain in force as long as the contract is valid. Contracts

obviously play an important role in managerial ethics. Labour-management contracts spell

42
out the terms and conditions of employment for employees who are covered under a

collective bargaining agreement. Such contracts typically oblige managers to pay certain

wages and benefits, provide certain working conditions and refrain from firing employees

except under specified circumstances. Contracts may also affect relations with customers,

suppliers and other company stakeholders.

Kant’s Duty-Based Approach

Immanuel Kant is the philosopher most often associated with the rights and duties approach

to morality. Kant emphasizes duties rather than rights. He identifies two kinds of rules (he

calls them “imperatives”), hypothetical and categorical. Hypothetical imperatives are

conditional. If you want to be a good flute player, then you ought to practice every day. The

categorical imperative is not conditional: it applies always and everywhere, according to

Kant. He phrases this categorical imperative in three different ways:

a) Act only according to that maxim whereby you can at the same time will that it should

become a universal law.

b) Act in such a way that you always treat humanity, whether in your own person or in

the person of any other, always at the same time as an end and never as a means

c) Therefore, every rational being must so act as if he were through his maxim always a

legislating member in the universal kingdom as an end.

Kant gives the example of a man who borrows money, but then has difficulty coming up with

enough to pay it back. The question Kant poses is whether this individual can morally fail or

refuse to repay the borrowed money. He explains that a universal rule that says “repay loans

only if it is convenient” could not work because no one would lend money under such

circumstances. The same sort of analysis would apply to a rule that said “lie when it is

43
convenient or embarrassing to tell the truth.” The categorical imperative imposes duties on

everyone, all the time.

Taking all the different rights into account, it is clear that the universal duty required by the

categorical imperative fits best with human rights because they are not dependent on anything

else to be applicable. One could form a universal rule to obey the tax laws of the countries

where your business is conducted, but this already introduces a certain degree of contingency.

Even here, though, Kant’s approach seems to many to be too rigid.

Suppose that I am home at night reading a novel and my next-door neighbour knocks

frantically on my door. When I open the door, she has terror in her eyes and asks me to hide

her because her husband is trying to kill her. I tell her to hurry upstairs and go in the room to

the right. One minute later, her husband pounds on my door. When I open it, he asks me

where his wife is because he wants to kill her. Is the moral answer “upstairs to the right?

Most people would say not. This brings us back to the point made earlier, that no right is

absolute. His right to be told the truth is not made earlier, that no right is absolute. His right to

be told the truth is not as great as her right to life.

The Theory of Rights

According to the theory of moral rights, human beings have certain fundamental rights that

should be respected in all decisions: the right to free consent, privacy, freedom of conscience,

free speech, and due process (Cavanagh et al., 1981). A right is a capacity, a possession, or

condition of existence that entitles either an individual or a group to enjoy some object or

state of being. For example, the right to free speech is a condition of existence that entitles

one to express one's thoughts as one chooses (Duska, 2002). Rights theories distinguish

between negative and positive rights. In the case of negative rights, the duty is to allow the

party to act freely within the domain covered by the right. In the case of positive rights, the

44
obligation is to provide the party with a benefit of some type. The moral force of a right

depends on its strength in relation to other moral considerations applicable to the context in

question (Jones et al., 2007). According to rights theory, as long as the distribution of wealth

in society is achieved through fair acquisition and exchange, the distribution is a just one

regardless of any degree of inequalities that may ensue (Budd, 2004). The morally correct

action is the one that a person has the moral right to do, that does not infringe on the moral

rights of others, and that furthers the moral rights of others (Rachels, 1999; Velasques, 1998;

Cavanagh et al., 1981; Schumann, 2001).

People who rely on rights theory to reason their actions emphasize the entitlement of

individuals (Cavanagh et al., 1981). Restrictions on behavior should prevent harm to others,

but unless your actions harm others, you should be free to do as you please. A manager

making a decision based on this theory should avoid violating the rights of others who may

be affected by the decision (Cavanagh et al., 1981).

Prima Facie Duties

This theory was propounded by William David Ross who published The Rights and the

Good (1930). In Ross’s theory, he believes there are duties or obligations which bind us

morally. In any moral decision, we must weigh the options with respect to the duties

involved and from the alternatives determine the duty that is most obligatory. To Barry

(1979) an act may fall under a number of rules at once … in such cases, each act is

accompanied by a number of motivational reasons which, in turn, appeal to moral duty: to be

faithful to a contract, to help someone, to render justice, to be loyal. Each of these moral

duties provides grounds for doing a particular action, but no single one provides sufficient

grounds. The problem lies in choosing the most obligatory duty.

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Fisher and Lovell (2006) contend that prima facie evidence is a legal term that refers to

evidence that is deemed sufficient to establish a presumption of truth about an incident,

unless or until counter-evidence is discovered. Thus, we can define a prima facie obligation

as one that should be respected in one’s practice, unless and until a different prima facie

obligation, with a superior claim for adherence, is presented. According to Barry (1979), the

term prima facie means “at first sight” or “on the surface”. By prima facie duties, Ross

means ones that at first sight dictates what we should do when other moral factors are not

considered. Stated differently, prima facie duties are ones that generally obligate us, that is,

ones that ordinarily impose a moral obligation but do not apply in a particular case because of

additional circumstances. Thus, prima facie duties must be distinguished from an actual duty,

that is, what one should do after considering and weighting all the prima facie duties

involved.

Ross (1930) and Barry (1979) identified 6 (six) types of prima facie duties which are outlined

as follows:

(1) The first they termed duties of fidelity which include duty not to lie especially in

conversation, to remain faithful in contracts, to keep to promises and to repair

wrongful acts.

(2) The second category of prima facie duties is/are duties of gratitude and this rest on

acts of other people towards the agents. Ross argues that we are bound by

obligations arising from relationships that exist between persons, such as those

between friends or between relatives and those between employers and

employees.

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 (3) Another category of prima facie duties, are duties of justice which rest on the fact

or possibility of distributing pleasure or happiness in a manner which is not in

accordance with the merits of the people concerned.

(4) In addition to the above, the fourth category of prima facie duties are duties of

beneficence which rely on the fact that there are other people in the world whose

virtues, intelligence, livelihood or happiness can be improved by others. For

instance, the management board of an institution can improve the happiness of its

pensioners by voting an increment in the retirement funds. It is worth noting that

society seems to be becoming increasingly aware of duties of beneficence as the

concept of social responsibility broadens.

(5) The fifth category of prima facie duties is/are the duties of self-improvement.

This duty rest on the fact that we can improve our own condition of virtue,

intelligence, or happiness. For instance, suppose an employee in company X

receives an offer in company Y that promises opportunities for personal growth

and development, than his present employment. Then on the basis of the duty of

self-improvement, he would take the offer in company Y. Here, a number of

duties operate including fidelity and gratitude.

(6) The last category of the prima facie duties is the duty of non-injury (non-

malfeasance), that is, those that do not injure others. Although not injuring others

incidentally means doing them good, Ross interprets the avoidance of injuring

others as a more pressing duty than beneficence.

In sum, the six prima facie duties do not represent a complete list of recognizable duties, but

are duties that we accept willingly. In the case of two or more obligatory duties, we take the

one with the greatest amount of rightness over wrongness (Barry, 1979).

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 CHAPTER FOUR

JUSTICE AND FAIRNESS

The implications of fairness and justice on business sustainability are enormous. Employees

who perceive injustice may experience low morale and commitment leading to poor

performance. Injustice may also affect the reputation of a business and therefore, managers

are expected to demonstrate justice and fairness in all managerial decisions in order to

maintain stakeholder worth. Students will be expected at the end of this chapter to:

 Explain the concept of fairness and justice

 Identify and explain the three types of justice in business/organization

 Explain justice theory

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  Analyse a business case from the point of view of justice/fairness

Introduction

Philosophers and social commentators were writing about justice long before management

scientists were. Among the ancient Greeks, for example, Herodotus' History and Plutarch's

Lives described the achievements of the lawgiver Solon, who reformed Athenian

government. These are the prescriptive approaches, since they seek to logically determine

what sorts of actions truly are just. As such, they reside comfortably within the domain of

business ethics. While organizational justice borrows from these older traditions, it has its

own distinctions. Unlike the work of philosophers and attorneys, managerial scientists are

less concerned with what is just and more concerned with what people believe to be just. In

other words, these researchers are pursuing a descriptive agenda. They seek to understand

why people view certain events as just, as well as the consequences that follow from these

evaluations. In this regard, justice is a subjective and descriptive concept in that it captures

what individuals believe to be right, rather than an objective reality or a prescriptive moral

code. As defined here, organizational justice is a personal evaluation about the ethical and

moral standing of managerial conduct. It follows from this approach that producing justice

requires management to take the perspective of an employee. That is, they need to understand

what sorts of events engender this subjective feeling of organizational justice. On this

important competency, many fall short.

Fairness and justice is an approach to ethical reasoning that includes several somewhat

different concepts under one umbrella. This approach defines the moral act as the act that

treats similarly situated people with similar ways with regards to both process and outcomes,

and with a sense of proportionality. Most of us were born in organizations (hospitals), learned

much of what we know in organizations (schools), work in and are compensated by

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organizations and, when we die, will very probably be buried or cremated by an organization.

In all of these contacts between individuals and organizations, there is some sort of exchange.

We exchange labour for wages and pension benefits. We exchange taxes for protection and

other governmental services. We exchange money for goods and services. Our interactions

with organizations and the people who constitute them are basically unceasing. In all these

interactions, we have expectations both for what we will give and for what we will get. When

these expectations are not met, we are disappointed, or angry, or sad. Our lives are affected,

on a daily basis, by the terms of exchanges. One of our most basic expectations in the wide

variety of exchanges that make up our daily lives is that we will be treated fairly.

The Principle of Justice

The principle of justice is another form of deontological ethics which has been used

synonymously with ‘fair play’. The principle of justice could be understood as the obligation

to give each party its due (Reeck, 1979). The maximum principle of justice was propounded

by John Rawls in his Theory of Justice (1971). Rawls (1971) has provided a relatively

modern statement on what is essentially deontological thinking, and his work has had

considerable impact on modern moral philosophy. To Barry (1979) central to Rawls’ theory

is the question of establishing principles of justice, what principles will serve as the basis for

justice in society. In answering, Rawls asks us to imagine a “natural state”, a hypothetical

state of nature in which everybody is ignorant of their talents and socioeconomic conditions.

He calls this the “original position”, in this position, people share certain characteristics. The

people are mutually self-interested; rational, that is, they more or less accurately know their

interests; needs and capacities. Given these assumptions Rawls then asks what people in the

original position would be likely to formulate when asked to choose a fundamental principle

of justice to be followed. Two principles would be chosen according to him and these are;

the liberty principle and the difference principle.

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Rawls argues further that they would not select absolute equality in the distribution of

benefits because they would recognize that some of them would put forth greater efforts,

have greater skills, develop greater competences and so on. They would not agree to absolute

inequality based on effort, skill or competence because they would not know who among

them had those qualities and consequently who among them would receive the greater and

the lesser benefits. Instead, they would develop a concept of conditional inequality, where

differences in benefits had to be justified, and then propose a rule that those differences in

benefits could be justified only if they could be shown to result in compensating benefits for

everyone, and in particular for the least advantaged members of their society (Hosmer, 1987).

By the liberty principle Rawls means to say that people in the original position would expect

each person participating in a practice or affected by it to have an equal right to the greatest

amount of liberty that is compatible with a like liberty for all. And by the difference principle

Rawls means that people in the original position would allow inequality only insofar as it

serves each person’s advantage and arises under conditions of equal opportunity (Barry,

1979). Equality simply means all persons should be treated equally or the same. To Rawls

(1971), equality means the impartial and inequitable administration and application of rules

which define a practice.

To Barry (1979) crucial to any theory of social justice is the determination of when inequality

is permissible. After all, a just society is not one in which all are equal, but one in which

inequalities are justifiable. Rawls addresses this problem with his difference principle; the

difference principle defines what kinds of inequalities are permissible. It specifies under

what conditions the equal liberty principle may be violated. For Rawls, equality is not

contingent. It does not depend on something else, such as on the greatest happiness for the

most people, for its justification. Equality is fundamental and self-justifying. Inequality is

51
permissible only if in all likelihood the practice involving the inequality works to the

advantage of every individual affected (Barry, 1979).

Closely related to the concept of justice is reciprocity. Reciprocity to Rawls (1971) is the

principle that requires that a practice be such that all members who fall under it could and

would accept it and be bound by it. It requires the possibility for mutual acknowledgement of

principles by free people, having no authority over one another that make the idea of

reciprocity fundamental to justice and fairness.

The theory of justice requires decision makers to be guided by equity, fairness, and

impartiality (Cavanagh et al., 1981). It relies on three types of moral prescriptions:

(a) That individuals who are similar in a relevant respect should be treated similarly and

individuals who are different in a relevant respect should be treated differently in proportion

to the difference between them;

(b) That rules should be administrated fairly and clearly; and

(c) That individuals should not be held responsible for matters over which they have no

control, and should be compensated for the cost of their injuries by those responsible for

these injuries (Cavanaugh et al., 1981).

Decision making and reasoning based on the theory of justice therefore focus on the

distributional effect of actions (Cavanagh et al., 1981).

Definition of Fairness

One of the most complete sentences spoken by many children (particularly if they have

siblings) is “That’s not fair!” A central issue in considerations of justice is the issue of what

we mean by being fair. Is it fair to provide equal opportunity to all, even if the outcomes are

unequal? Is it fair to distribute some resources (welfare benefits, charitable donations) based
52
on need and other resources (high salaries, prestigious positions) based on merit? Is it fair to

give preference to an individual now because she is a member of a group that was denied

equal treatment in the past?

The individual manager’s decision is constrained by the system involved. The kinds of

systems under discussion are not information technology systems but such things as standard

hiring procedures, compensation systems such as salary ranges and guidelines for increases

or stock option awards, and company-wide directives for the conduct of layoffs. These

various systems can be seen as rules for procedural fairness, whereas individual decisions by

managers about resource allocations can be seen as examples of distributive fairness.

Equity theory

Perhaps the earliest theory of distributive justice can be attributed to Aristotle. In his

Nicomachean Ethics, the philosopher maintained that just distribution involved "something

proportionate," which he defined as "equality of ratios." Specification, and a bit of

rearrangement, led Adams (1965) to represent his influential equity theory of distributive

justice with the following equation? According to equity theory, we are interested in how

much we get (outcomes) relative to how much we contribute (inputs). Such a ratio is

meaningless, however, unless anchored against some standard. To accomplish this, we

examine the outcomes and inputs of some referent. Usually, though not necessarily, this is

another person who is similar to us. Things are "equitable" when the ratios, not the individual

terms, are in agreement. When the ratios are out of alignment, employees may feel uneasy.

They are motivated to "balance" the equation by modifying the terms. For example, one who

is underpaid might reduce inputs by a corresponding amount. This simple equation leads to a

number of predictions, some of which are not obvious. For example, an individual who earns

less than another may still be satisfied, as long as he or she also contributes less. Likewise, a

53
person who is paid equally to another may feel unjustly treated if he or she also contributes

substantially more to the organization. These consequences often do not occur to managers,

but they make good sense in light of equity theory. But by far the most famous prediction

from equity theory is the "over-reward effect"? That is, what happens when the equation is

unbalanced in one's own favour?

According to equity theory, when one is over paid the two sides of the ratios are misaligned.

Consequently, one must work harder (i.e., increase inputs) in order to be equitable. These

effects seem to occur. Greenberg (1988) studied managers who were temporarily moved to

higher or lower-status offices than their position actually warranted. Those moved to higher-

status offices boosted performance, whereas those moved to lower-status offices showed

decrements. These gains and losses later disappeared when individuals were returned to

status-appropriate office spaces. Apart from its impact on performance, inequity can also

cause workplace sabotage (Ambrose, Seabright, & Schminke, 2002) and employee theft

(Greenberg, 1993). It is personally painful for employees, as distributive injustice is

associated with stress symptoms (Cropanzano, Goldman, & Benson, 2005). Recent advances

in distributive justice. There is more to distributive justice than simple equity. These different

standards can be in conflict with one another. Generally speaking, we can distinguish three

allocation rules that can lead to distributive justice if they are applied appropriately: equality

(to each the same), equity (to each in accordance with contributions), and need (to each in

accordance with the most urgency). These rules map onto Aristotle's famous dictum that

all men wish to be treated like all other people (equality), like some other people

(equity), and like no other person (need). While it is no mean task to find the correct

alchemistic combination among these three allocation rules, there are three basic suggestions

that can be helpful.

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First, it is useful to consider one's strategic goals (Colquitt, Greenberg, & Zapata-Phelan,

2005). Equity tends to provide individual rewards for high performance, whereas equality

tends to build esprit de corps among teammates. If one desires to stimulate individual

motivation, err toward equity. If one desires to build group cohesion, err toward equality. We

shall return to this issue later when we discuss reward systems.

Second, organizations can balance these considerations by mixing equality and equity

together. It need not be either-or. Experiments with work groups suggest that it is often best

to provide team members with a basic minimum of benefit. This is analogous to equality.

Above that minimum, however, it can be useful to reward based on performance. This is

analogous to equity. This sort of hybrid approach has been adopted by many organizations.

Their compensation systems contain a "fixed" base; everyone in a particular job class and

with a particular tenure receives this base. Employees are also encouraged to go beyond this

minimum, earning additional pay through the allocation of merit bonuses (Milkovich &

Newman, 2005). Third, different rewards should be provided in accordance with different

rules. Equity works well for some things, such as money, but less well for others, such as

status symbols. Among American managers, it is often seen as fair to allocate economic

benefits in accordance with equity (i.e., those who perform better might earn more). On the

other hand, social-emotional benefits, such as reserved parking places, are best allocated

equally (Martin & Harder, 1994). Employees often see themselves and their peers as

belonging to a group or, in the most beneficial case, a community. Allocating social-

emotional rewards equally signals that everyone in the organization matters and is worthy of

respect.

Three Components of Justice

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Research has shown that employees appraisee three families of workplace events. They

examine the justice of outcomes (distributive justice), the justice of the formal allocation

processes (procedural justice), and the justice of interpersonal transactions they encounter

with others (interactional justice). They can be meaningfully treated as three components of

overall fairness (Ambrose & Arnaud, 2005; Ambrose & Schminke, 2007), and the three

components can work together. However, if one's goal is to promote workplace justice, it is

useful to consider them separately and in detail. This is because each component is

engendered in distinct ways, arising from different managerial actions.

Distributive Justice

Researchers call the first component of justice distributive justice because it has to do with

the allocations or outcomes that some get and others do not. Distributive justice is concerned

with the reality that not all workers are treated alike; the allocation of outcomes is

differentiated in the workplace. Individuals are concerned with whether or not they received

their "just share." Sometimes things are distributively just, as when the most qualified person

gets promoted. Other times they are not, as when advancement goes to corporate "insiders"

with a political relationship to upper management.

Procedural Justice

Procedural justice is intended to achieve distributive justice. In other words, the ultimate

concern when using fairness and justice as an approach to ethics is with results – how do

resources end up being distributed, and is this distribution fair and just? Procedural justice is

instrumental, in that it is concerned with achieving some result. Procedural justice serves two

important purposes: it makes it more likely distribution of resources will occur and it

encourages the perception that results are fair because procedures were fair.

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Obviously not all procedural systems will be equally fair, and some may be patently unfair. A

system that grants options for large amounts of stock to a few senior managers and none to

anyone else is at least open to a charge of unfairness. A system that grants a greater chance

for admission to a selective university to children of alumni readily creates a perception of

unfairness on the part of applicants and their parents who are not alumni. Many procedural

systems are designed to assure compliance with laws and regulations, particularly in areas

relating to human resources. While it is certainly important to comply with the law, both in

the design of procedural systems and in their application, doing so does not necessarily

guarantee that decision will be moral.

Procedural justice refers to the means by which outcomes are allocated, but not specifically to

the outcomes themselves. Procedural justice establishes certain principles specifying and

governing the roles of participants within the decision-making processes. In three papers,

Leventhal and his colleagues (Leventhal, 1976, 1980; Leventhal, Karuza, & Fry, 1980)

established some core attributes that make procedures just: (a) A just process is one that is

applied consistently to all, free of bias, accurate, representative of relevant stakeholders,

correctable, and consistent with ethical norms. Though surprising to some, research has

shown that just procedures can mitigate the ill effects of unfavourable outcomes. Researchers

have named this the "fair process effect." To illustrate let us consider the case of strategic

planning. Kim and Mauborgne (1991, 1993) reported that when managers believed that their

headquarters used a fair planning process, they were more supportive of the plan, trusted their

leaders more, and were more committed to their employers. In their well-known book, Blue

Ocean Strategy, Kim and Mauborgne (2005) explain why. Fair processes lead to intellectual

and emotional recognition. This, in turn, creates the trust and commitment that build

voluntary cooperation in strategy execution.

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Procedural injustice, on the other hand, produces "intellectual and emotional indignation,"

resulting in "distrust and resentment" (p. 183). Ultimately, this reduces cooperation in

strategy execution. We can go further. Procedural justice seems to be essential to maintaining

institutional legitimacy. When personnel decisions are made, individuals are likely to receive

certain outcomes. For instance, one may or may not be promoted. According to Tyler and

Blader (2000), outcome favourability tends to affect satisfaction with the particular decision.

This is not surprising. What is more interesting is that procedural justice affects what workers

believe about the organization as a whole. If the process is perceived as just, employees show

greater loyalty and more willingness to behave in an organization's best interests. They are

also less likely to betray the institution and its leaders.

Interactional Justice

In a sense, interactional justice may be the simplest of the three components. It refers to how

one person treats another. A person is interactionally just if he or she appropriately shares

information and avoids rude or cruel remarks. In other words, there are two aspects of

interactional justice (Colquitt, Conlon, Wesson, Porter, &Ng, 2001). The first part, sometimes

called informational justice refers to whether one is truthful and provides adequate

justifications when things go badly. The second part, sometimes called interpersonal justice,

refers to the respect and dignity with which one treats another. As shown in Table 1, both are

important. Because interactional justice emphasizes one on-one transactions, employees often

seek it from their supervisors. This presents an opportunity for organizations. In a quasi-

experimental study, Skarlicki and Latham (1996) trained union leaders to behave more justly.

Among other things, these leaders were taught to provide explanations and apologies

(informational justice) and to treat their reports with courtesy and respect (interpersonal

58
justice). When work groups were examined three months later, individuals who reported to

trained leaders exhibited more helpful citizenship behaviors than individuals who reported to

untrained leaders.

Similarly situated individuals and similar treatment

Any procedural system is general and individual distributions of resources are specific. The

ethical sensitivity, or lack thereof, of the individual manager making an individual decision is

important to the ultimate attainment of distributive justice. In order for a manager to make

decisions that are ethical according to the perspective of fairness and justice, she must be able

to determine who are similarly situated individuals and what constitutes similar treatment.

Sometimes this is easy, and sometimes it is not.

Why Employees Care About Justice

Managers too often assume that justice, in the minds of employees, means only that they

receive desirable outcomes. These managers are confusing outcome favorability with

outcome justice. The former is a judgment of personal worth or value; the latter is a judgment

of moral propriety. Evidence shows that outcome justice and outcome favorability are distinct

(Skitka, Winquist, & Hutchinson, 2003) and correlated between .19 and .49, depending on

where and how the variables are measured (Cohen-Charash & Spector, 2001). In so many

words, it's important to get what you want, but other things matter as well. For this reason it

is useful to consider three reasons justice matters to people (for details, see Cropanzano,

Rupp, Mohler, & Schminke, 2001).

Long-range benefits: People often "sign on" for the long haul. Consequently, they need to

estimate now how they are likely to be treated overtime. A just organization makes this

prediction easy. According to the "control model," employees prefer justice because it allows

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them to predict and control the outcomes they are likely to receive from organizations.

According to the control model of justice, appropriate personnel policies signal that things are

likely to work out eventually. Most of us understand that every personnel decision cannot go

our way, but justice provides us with more certainty regarding our future benefits. For this

reason the control model proposes that people are often motivated by economic and quasi-

economic interests (cf. Tyler & Smith, 1998). People want fairness because fairness provides

things they like. There is more than a little truth to this idea. For instance, when individuals

are rewarded for successfully completing a task they report being happy (Weiss, Suckow, &

Cropanzano, 1999) and having pride in their performance (Krehbiel & Cropanzano, 2000).

This is so even when their success resulted from cheating. At the same time, these individuals

also report feeling guilty for their unfair behavior, suggesting that individuals can recognize

and react to injustice, even when it is personally beneficial. There is sometimes a certain

tension between getting what we want and playing by the rules. The two tend to go together,

but less so than many believe. For example, pay satisfaction is only modestly correlated with

perceptions of pay justice (Williams, McDaniel, & Nguyen, 2006). If "justice" were based

exclusively on obtaining benefits, then one would expect a higher association. Later we shall

discuss evidence suggesting that individuals can accept an unfortunate outcome as long as the

process is fair and they are treated with interpersonal dignity (e.g., Goldman, 2003; Skarlicki

& Folger, 1997).

Social considerations: People are social animals. We wish to be accepted and valued by

important others while not being exploited or harmed by powerful decision-makers. In the

"group-value model," just treatment tells us that we are respected and esteemed by the larger

group. We are also at less risk for mistreatment. This sense of belonging is important to us

even apart from the economic benefits it can bring (Tyler & Blader, 2000; Tyler & Smith,

1998). As you might expect, this can pose a potential problem for organizations. To the

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extent that justice signals our value to an employer, the more we care about the organization

the more distressed we become when we are treated unfairly. Brockner, Tyler, and Cooper-

Schneider (1992) assessed the commitment of a group of employees before a layoff occurred.

After the downsizing those people who were initially the most committed responded the most

negatively to the downsizing. When we treat workers unfairly, we may end up doing the most

harm to those who are most loyal.

Ethical considerations: People also care about justice because they believe it is the morally

appropriate way others should be treated (Folger, 2001). When individuals witness an event

they believe is ethically inappropriate, they are likely to take considerable risks in the hopes

of extracting retribution (Bies & Tripp, 2001, 2002). Such unfortunate (from the

organization's point of view) reactions may occur even when an employee simply witnesses

the harm and is not personally wronged (Ellard & Skarlicki, 2002; Spencer & Rupp, 2006).

Consider, for example, a day-to-day problem faced by many service workers. When these

employees see a customer treating one of their coworkers unfairly, the observing worker is

apt to experience stress symptoms. Through this mechanism, injustice may spread ill will

throughout a workgroup.

Justice and Organizational Identity

More broadly, we suggest that justice can be a core value that defines an organization's

identity with its stakeholders, both internally and externally. When justice is espoused as a

core value of an organization's management philosophy and en acted through a set of

internally consistent management practices, it can build a "culture of justice," a system-wide

commitment that is valuable and unique in the eyes of employees and customers, and tough

to copy in the minds of competitors. And that can translate into the makings of sustainable

competitive advantage. In our next section, we will look at management practices that can

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help develop a culture of justice. How to Create Perceptions of Justice We will now turn to

common and important workplace situations, discussing a variety of managerial and

personnel functions provide a lesson for promoting justice, including some normative

recommendations regarding how individuals should be treated. And in each case we will

return to one or more of our conceptual observations, such as the fair process effect and the

two-factor model, illustrating how these phenomena affect real-life organizations.

Selection Procedures: Positive Job Candidates

For most job candidates, the recruiting and selection process is their first introduction to an

organization. How they are treated at this time can have ramifications later. Applicants who

feel justly treated are more likely to form positive impressions of the organization (Bauer et

al., 2001) and recommend it to their friends (Smither, Reilly, Millsap, Pearlman, & Stoffey,

1993). And the flip side is also true. When applicants feel unjustly treated they are more

likely to consider litigation as a potential remedy (Bauer et al., 2001). This research suggests

that it pays for organizations to put their best foot forward. By treating applicants justly in the

hiring process, organizations are setting the foundation for a relationship of justice and trust

when those applicants become employees. The research on job candidates' reactions to

recruiting and hiring processes suggests that it is about much more than whether or not

someone gets the job. Further, because applicants don't often know why they didn't get the

job or the qualifications of the person who did, distributive justice is less of a concern in

selection. However, managers do need to be mindful of procedural and interactional justice. It

is also important to realize that the selection process begins with recruiting and initial

communication, and encompasses all contact with job candidates up to and including

extending an offer and rejecting an individual for a job (Gilliland & Hale, 2005). In terms of

procedural justice, research has identified two broad sets of concerns: Appropriate questions

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and criteria are critical for procedural justice. Job candidates expect interview questions and

screening tests to be related to the job, or at least to appear to be related to the job (Gilliland,

1994; Ryan & Chan, 1999). Overly personal interview questions and some screening tests,

such as honesty tests, are often seen as inappropriate and an invasion of candidates' privacy

(Bies & Moag, 1986; Kravitz, Stinson, & Chavez, 1996). Adequate opportunity to perform

during the selection process means giving job candidates the chances to make a case for

themselves and allowing sufficient time in interviews (Truxillo, Bauer, & Sanchez, 2001). If

standardized tests are used to screen applicants, justice can be enhanced by allowing

candidates to retest if they feel they did not perform their best (Truxillo et al, 2001). On the

face, these two criteria seem reasonable and pretty straightforward. However, when compared

with recommended hiring practices, managers are often faced with a "justice paradox"

(Folger & Cropanzano, 1998). That is, many of the selection procedures with the highest

predictive validity? Those that are the best screening tools? Are unfortunately those that fail

to satisfy these justice concerns? Consider cognitive ability and personality tests. These

screening methods have high demonstrated validity (Schmidt & Hunter, 1998), but both are

seen by job applicants as not particularly fair (Steiner & Gilliland, 1996). Questions on these

tests are often not related to the job, and applicants don't feel they have an opportunity to

present their true abilities. The converse is also observed with the justice paradox. Traditional

unstructured interviews have long demonstrated weak predictive validity, not much better

than chance (Huffcutt & Arthur, 1994). However, job applicants perceive these interviews as

having high procedural justice because they are able to demonstrate their qualifications

(Latham & Finnegan, 1993). Adding structured situations and questions to the interview

increases predictive validity, but decreases perceptions of procedural justice. So how can this

justice paradox be managed effectively? We have three suggestions. First, there are some

screening tools that have both predictive validity and procedural justice. Work sample tests

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and performance-based simulations demonstrate reasonable predictive validity (Roth, Bobko,

& McFarland, 2005) and are also seen as procedurally just (Steiner & Gilliland, 1996). A

second solution is to modify existing screening tools to increase job applicants' perceived

procedural justice. Smither and colleagues (1993) found that cognitive ability tests with

concrete, rather than abstract, items tended to be viewed more positively by job applicants.

Based on the observation that applicants perceive greater justice in unstructured interviews,

Gilliland and Steiner (1999) suggest a combined interview that has both structured behavioral

questions to maximize predictive validity and unstructured questions to allow applicants the

"opportunity to perform."

The third suggestion is based on our earlier discussion of interactional justice. Recall that

interactional justice can attenuate the negative effects of procedural injustice. Research has

demonstrated that interactional justice is very important for job candidates (Bies & Moag,

1986; Gilliland, 1995). With attention to considerate interpersonal treatment, honest

information, and timely feedback, organizations can create hiring processes that embody

interactional justice. Research has demonstrated that the informational components are

particularly important if there are unanticipated delays or unusual screening procedures

involved in the process (Rynes, Bretz, & Gerhart, 1991).

Reward Systems: Justly Balancing Multiple Goals

At the most basic level, rewards systems need to accomplish two goals: They need to

motivate individual performance, and they need to maintain group cohesion. While both

goals are worthwhile, distributive justice research tells us that it is difficult to accomplish

them simultaneously. Equity allocations, which reward for performance, can spur individual

effort. But the resulting inequality that is likely to occur can be disruptive. In a study of

academic faculty, Pfeffer and Langton (1993) examined wage dispersion in their home

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departments. When wage dispersion was high, faculty reported less satisfaction and less

collaboration with colleagues. Overall research productivity dropped as well. This is not what

merit pay is supposed to do. Paying everyone the same thing, though, is not the answer either.

Indeed, equality distributions can boost group harmony, but they bring troubles of their own.

A key problem is one of external equity. High-performing employees, or those with rare

skills, may be worth more in the external marketplace. If their salaries are "capped" to

maintain internal equality, these workers may seek employment elsewhere. This is just

another way of saying that no matter how people are paid, not everyone will be satisfied.

How then to position rewards? The research discussed earlier underscores an opportunity. To

be sure, individuals who do not receive the compensation they desire will want more.

However, they often remain loyal to their employer if the pay administration procedures are

viewed as fair. Consequently, if an organization needs to maintain external equity, it can do

so and risk internal inequality, but only as long as the allocation process is just. To illustrate,

McFarlin and Sweeney (1992) surveyed more than 600 banking employees. As expected,

when distributive justice was low, workers reported less pay satisfaction and less job

satisfaction. This is bad news, but it is partially compensated for by the procedural justice

results.

When procedural justice was high, workers experienced higher organizational commitment

and a positive reaction to their supervisors. This is the two-factor model in action. Individuals

who were not necessarily satisfied with their pay were still unlikely to derogate the

organization when the procedures were just. In addition to procedural justice, interactional

justice can be helpful in administering pay fairly. To illustrate this point, let us consider a

situation that everyone dislikes: pay cuts. Greenberg (1993) found that differences in how pay

cuts were managed at two manufacturing plants produced dramatically different outcomes.

The key is interpersonal treatment. In one, an executive politely, but quickly in about 15

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minutes, announced a 15% pay cut. In the other, an executive spent about an hour and a half

speaking, taking questions, and expressing regrets about making an identical pay cut. During

a subsequent 10-week period, employee theft was about 80% lower in the second case, and

employees in that plant were 15 times less likely to resign. No one wanted to have his or her

pay cut. But workers understood why it happened, appreciated the supportive interpersonal

treatment, and did not vent their ire on the organization.

Conflict Management: You Don't Have to Win

Thomas and Schmidt (1976) tell us that managers may spend about 20% of their time settling

disputes among employees, and they are not always successful (Schoorman & Champagne,

1994). Conflict resolution is likely to be most difficult when one or both parties are

intransigent. At this point the manager may listen to both disputants, but will need to impose

a settlement on them. This is called arbitration, and it is ultimately autocratic. As a result,

arbitration may sound risky because it hazards a distributive injustice; the settlement is

imposed and not approved in advance by other parties. There is good news, however. If any

component of justice is present during arbitration (distributive or procedural or interactional),

the overall appraisal of the situation will be improved (Goldman, 2003). Because arbitration

preserves procedural justice, an unfortunate outcome is less destructive than one might

imagine. Or, we might say, managers can make hard choices, but they have to make them

justly (for details see Folger & Cropanzano, 1998). This illustrates a simple yet powerful

lesson from research on conflict resolution: If you can't give people the outcome they want, at

least give them a fair process. Layoffs: Softening Hardship So far we have reviewed evidence

pertaining to justice in the context of hiring, reward systems, and conflict resolution. These

are everyday events in a large organization, and each will function more effectively if justice

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is taken into account. Even a reader willing to indulge our arguments so far might be

wondering whether justice helps when something really bad happens.

Among common management situations that affect employees, downsizing is among the

worst (Richman, 1993). Layoffs have pernicious effects, harming the victims while

undermining the morale of survivors who remain employed. Though downsizing is a widely

used cost-cutting strategy, it is highly risky. The costs of workforce reductions often

outweigh the benefits (Kammeyer-Mueller, Liao, & Arvey, 2001). In these circumstances

people not only lose, they lose big. The event can be so negative that a sense of distributive

injustice is virtually a given. Can the guidelines suggested in this paper do any good at all?

As a matter of fact, they can. When a layoff is handled with procedural and interactional

justice, victims are less likely to derogate their former employers (Brockner et al., 1994,

Study 1). Indeed, justice can have direct bottom-line effects. Lind, Greenberg, Scott, and

Welchans (2000) interviewed a large number of layoff victims. Many of these individuals

considered legal action following their downsizing, and almost a quarter of the victims went

so far as to speak to an attorney. The single best predictor of willingness to take legal action

was the justice of the treatment they received at the time of their discharge. Among those

who felt unjustly treated, Lind and his colleagues found that a full 66% contemplated

litigation. Among those who felt justly treated, this dropped to just 16%. These are

impressive findings.

Although managers are often coached by attorneys or HR representatives to avoid

apologizing, an apology can be seen as an admission of guilt? These results suggest that an

apology may help promote the feelings of interactional justice that actually reduce the risk of

litigation. Justice, it would seem, provides a useful way to survive a crisis with one's business

reputation intact. While we have so far discussed the victims of layoffs, workforce reductions

also affect survivors. Those left behind, though retaining their jobs, tend to suffer from

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"survivor guilt" (Brockner & Greenberg, 1990). However, if organizations provide a good

explanation as to why the downsizing is necessary?an aspect of interactional justice? the

remaining employees respond much less negatively (Brockner, De Witt, Grover, & Reed,

1990).

Providing unemployment benefits is also advantageous, as one might expect. However, if

these benefits are lacking, an advance warning that a layoff is about to occur will blunt the

negative reactions that might otherwise transpire (Brockner et al., 1994, Studies 2 and 3).

Performance Appraisals: Keeping Score Fairly In order to assign rewards, identify candidates

for promotion, and develop human capital, most large organizations conduct performance

evaluations. While these appraisals are useful, concerns remain, and their implementation is

often troubled. For example, scholars have observed a phenomenon called the "vanishing

performance appraisal" (for a review, see Folger & Cropanzano, 1998). When surveyed, most

managers reported having provided performance reviews, while many of their subordinates

reported never receiving one. Other research suggests that evaluations are affected by

political considerations (Longenecker, Gioia, & Sims, 1987), cognitive processing limitations

of the rater (DeNisi & Williams, 1988), and the social context in which they are conducted

(Levy & Williams, 2004). These concerns tell us that the performance appraisal process often

contains a good deal of ambiguity as well as room for reasonable people to disagree. For this

reason, it is helpful to approach performance evaluations with an eye to their subjectivity.

Historically, much of the advice academics provided to practitioners encouraged them to

think of the performance review as a sort of test, whereby the central task is to assign a valid

rating to a more-or-less objective quantity. For example, raters have been advised to "become

expert at applying principles of test development" (Banks & Roberson, 1985, p. 129) and that

"psychometric issues surrounding performance measurement [are] more relevant than ever"

(DeVries, Morrison, Shullman, & Gerlach, 1981). This venerable, measurement-oriented

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understanding of performance appraisal has been termed the "test metaphor" (Folger,

Konovsky, & Cropanzano, 1992).

More recent performance appraisal work has taken a broader perspective, emphasizing the

social setting (Levy & Williams, 2004) and input from multiple sources (Smither, London, &

Reilly, 2005). In this vein, Cawley, Keeping, and Levy (1998) meta-analyzed 27 field studies,

each of which examined employee participation in performance appraisal. They found that

when employees had a voice they were more satisfied, saw the process as more fair, and were

more motivated to do better. This is interesting, but probably not terribly surprising. The

really impressive finding was that these effects occurred even when participation could not

affect the rating. Simply being able to speak one's mind (what Cawley and coauthors termed

"value-expressive" participation) caused employees to be more favorable toward the

performance appraisal system. Notice how these findings are consistent with the fair process

effect mentioned earlier.

Research on organizational justice is providing a new paradigm for understanding

performance review. Consistent with Folger, Konovsky, and Cropanzano (1992), we call this

the due process approach to performance appraisal. Adopting a due process metaphor

sensitizes one to the distinct interpretations, potential conflicts of interest, and legitimate

disagreement about facts. The due process approach to performance review has three core

elements: adequate notice, just hearing, and judgment based on evidence. Adequate notice, as

one might expect, involves letting people know in advance when they will be appraised and

on what criteria they will be appraised. However, from a justice point of view, it goes beyond

this. It is also useful to have workers involved in devising performance standards and making

these widely available. Of course, it follows that feedback should be provided regularly. Just

hearing means limiting the feedback review to "admissible" evidence, such as worker

performance rather than personal attacks. It also means providing workers with a chance to

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provide their own interpretation of events, including disagreeing with the supervisor where

this is appropriate.

Judgment based on evidence means that the standards should be accurate, data should be

gathered, and decisions should be based on this formal process. Steps should be taken to

provide rater training, so as to improve accuracy and to keep the process free of political

influence. Taylor, Tracy, Renard, Harrison, and Carroll (1995) redesigned the performance

appraisal system of a large state agency so that it included these principles of due process.

They discovered that workers preferred the new system, finding it fairer and more effective.

Managers liked it as well, believing that it allowed them to be honest and feeling that it was

more effective for solving work problems. This occurred even though workers in the due

process system received lower ratings than did workers under the older approach. This is all

to the good, but there are risks involved.

Adequate notice, just hearing, and judgment based on evidence are complicated to

administer. A key problem is that they may raise expectations while simultaneously

providing employees with a set of tools for making their discontent felt. Consider the case of

two companies studied over six years by Mesch and Dalton (1992). Each firm was in the

same region, and workers in each were represented by the same union. In fact, grievances at

both organizations were assigned to the same union local. After 36 months, one of the firms

decided to improve its grievance process by adding a fact-finding intervention. Before the

grievance process began, both the union and management provided a "fact finder" to

determine the merits of the case, prevent concealment of information, and encourage

negotiated settlements. This provided an additional stage of process protection. The result?

The number of grievances filed skyrocketed at the firm with the new procedural safeguard,

but stayed roughly constant at the other organization. After about two years, the fact-finding

intervention was abandoned, and the grievance rate returned to normal. The new intervention

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seems to have raised expectations and thereby encouraged workers to complain about real

and imagined ill-treatment. In the long run this was counterproductive. The implications of

Mesch and Dalton's (1992) study need to be appreciated. If procedures are not designed

appropriately, they could create more problems than they solve.

Concluding Thoughts

There are two sides to the justice coin. On the negative side, the absence of justice is likely to

provide problems for organizations. There is strong evidence that injustice can provoke

retaliation, lower performance, and harm morale (Cohen-Charash & Spector, 2001; Colquitt

et al., 2001; Viswesvaran & Ones, 2002). On the positive side, justice can do more than

forestall these unfortunate outcomes. Justice acts as a sort of buffer, allowing employees to

maintain respect and trust for an organization even when things do not go as they would have

liked (Brockner & Wiesenfeld, 1996). It is inevitable in life that things will not always go our

way. However, the negative effects of an unfortunate event are less severe if an organization

is able to maintain procedural and interactional justice (Goldman, 2003; Skarlicki & Folger,

1997). Justice provides an excellent business opportunity, from reaping specific returns such

as stronger employee commitment to gaining an overall tough-to-copy competitive edge that

resides in a "culture of justice." In this paper we have examined justice from the perspective

of five managerial tasks: hiring, reward systems, conflict management, layoffs, and

performance appraisals. These tasks are diverse, but they all involve a degree of risk. Each

has the potential to designate some as "winners" and others as "losers." After all, there will

always be people who fail to get the job, receive a lower than expected performance

appraisal, or are downsized in the face of business exigencies. As a result, organizations

hazard the ill will of employees simply because they are making the sorts of decisions

necessary to run their businesses. Organizational justice allows managers to make these tough

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decisions more smoothly. Just play certainly does not guarantee all parties what they want.

However, it does hold out the possibility that power will be used in accordance with

normative principles that respect the dignity of all involved. This is sound business advice. It

is also the right thing to do

CHAPTER FIVE

CONTEMPORARY ISSUES IN BUSINESS ETHICS

This chapter treats three critical and important ethical issues which have attracted attention

globally. Specifically, this broad chapter will be divided into three specific chapters: whistle

blowing, conflict of interest and corruption. At the end of this chapter, students will be

expected to:

 Explain the concept of whistle blowing

 Identify and explain the components of whistle blowing

 Discuss the concept of conflict of interest

 Explain the ethical implications of conflict of interest

 Evaluate the concept of corruption

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  Discuss causes of corruption

 Identify and explain categories and types of corruption

 Discuss solutions to corruption

WHISTLE-BLOWING

Introduction

Reporting wrongdoing although critical to organizational survival, increasingly people have

developed a negative attitude towards whistle blowing as a result of the dangers associated

with the act of whistle blowing especially to the whistle blower. This section addresses

critical issues on the concept of whistle blowing and its relevance in organizations.

Whistle-blowing Defined

The term whistle-blowing is derived from the act of a referee in a sport event where the

referee blows the whistle to stop the action, usually on account of an illegal play (Miceli &

Near, 1992). The official name for whistle-blowing is ‘making a disclosure in the public

interest”, however it is much more commonly called ‘blowing the whistle’ or ‘whistle-

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blowing’. It means that if you believe there is wrongdoing in your workplace (eg your

employer is committing a criminal offence) you can report this by following the correct

processes, and your employment rights are protected.

Whistle-blowing/blower was a word created in the 70s to specifically differentiate

allegations from somebody from inside the company as opposed to allegations of a wrong-

doing by someone from outside the company. Near and Miceli, (1985) define whistle-

blowing as the “disclosure by organisation members of illegal, immoral, or illegitimate

practices under the control of their employers, to a person or organisations that may be

able to effect action”.

Boatright (2000) has also defined whistle-blowing as the voluntary release of non-public

information, as a moral protest, by a member or former member of an organization

outside the normal channels of communication to an appropriate audience about illegal

and/or immoral conduct in the organization or conduct in the organization that is

opposed in some significant way to the public interest.

The agreed-upon definition of whistle-blowing according to Johnson (2003) has four

components:

1) A person acts with the intention of making information public;

2) The information is transmitted to people outside the organisation who make it public

and a part of the public record;

3) The information has to do with possible or actual nontrivial wrong-doing in a

company; and

4) The individual exposing the organisation is not a journalist or ordinary citizen, but an

employee or former employee of the organisation.

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Whistle-blowing has been recognized as a control mechanism to prevent unethical behavior,

and to protect the organization’s long-term welfare, and to ensure good corporate governance

(Eaton and Akers, 2007). In recent years, scholars’ interest in whistle-blowing within

business and public organizations has been heightened by widely publicized cases (e.g.

Enron, WorldCom, Tyco, Global Crossing, Adelphia, and even the International

Olympic Committee to name just a few of the most prominent (Calvert, 2002) and by

increased legal protection for whistleblowers in numerous countries, such as the

Protected Disclosures Act of New Zealand, Whistle-blowing Policy of France, the

Sarbanes-Oxley Act of the USA, Public Interest Disclosure Act of the UK (Eaton and

Akers, 2007) and Ghana’s Whistle-blowers Act of 2008.

Perhaps the most infamous case is that of Enron. Sadly, Enron was regarded as one of the

most promising companies in USA before its collapse. It was even rated the most innovative

large company in America from 1996 to 2001 (Lainson, 2001). As of December 31, 2000,

Enron’s stock was priced at $83.13, and its market capitalization exceeded $60 billion, 70

times earnings and six times book value, an indication of the stock market’s high

expectations about its future prospects. Yet within a year, Enron’s image was in tatters and its

stock price had plummeted nearly to zero (Healy and Palepu, 2003). The recent convictions

of Kenneth Lay and Jeffery Skilling finally brought this sad chapter of business history to a

close (Calkins, 2004).

Encouraging Internal Whistle-blowing in Organizations

When Time magazine editors named WorldCom's Cynthia Cooper and Enron's Sherron

Watkins two of their People of the Year for 2002, they were acknowledging the importance

of internal whistleblowers-employees who bring wrongdoing at their own organizations to

the attention of superiors. At WorldCom, Cooper pushed forward with an internal audit,
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alerting the Board of Directors Auditing Committee to problems, despite being asked by the

company's CFO to postpone her investigation. According to Fortune magazine, "If Cooper

had been a good soldier, the whole incredible mess might have been concealed forever." At

Enron, accountant Sherron Watkins outlined the company's problems in a memo to then-CEO

Kenneth Lay.

But by the time Watkins and Cooper blew the whistle, much damage had already been done,

and the shareholders and employees were the ultimate losers. So the question is, How does an

organization create a culture that encourages employees to ask questions early-to point out

issues and show courage in confronting unethical or illegal practices? And then how can a

company ensure that timely action is taken? In other words, how does an organization

encourage internal whistle-blowing?

Attitudes Toward Whistle-blowing

These questions must be answered in the context of conflicting cultural norms, which make it

likely that whistleblowers will encounter hostility and alienation. As Terance Miethe explains

in his book, Whistle-blowing at Work, many people see the whistleblower as a "snitch," or

"a lowlife who betrays a sacred trust largely for personal gain."

This attitude was illustrated by an arbitrator in a 1972 case, who told the employee that you

cannot "bite the hand that feeds you and insist on staying on for the banquet." Among

others, Peter Drucker, the famed management guru and anti-whistleblower, viewed whistle-

blowing as "informing," illustrating yet another instance of the animus whistleblowers have

to expect from advocates of loyalty to the organization first.

On the flip side, whistleblowers such as Frank Serpico and Karen Silkwood are seen as

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"saviours" who ultimately helped create important changes in organizations. This

approach to whistleblowers as guardians of public accountability is often taken by consumer

advocates such as Ralph Nader. Given this dichotomy, whistleblowers may well encounter

difficulties when they appeal internally or go public with information that may damage their

companies.

Brief History

Attitudes toward whistle-blowing have evolved considerably during the past 50 years in

corporate America, from the early days of the "organization man" ethos where loyalty to the

company was the ruling norm, to the present time when public outrage about corporate

misconduct has created a more auspicious climate for whistle-blowing.

Prior to the 1960s, corporations had broad autonomy in employee policies and could fire an

employee at will, even for no reason. Employees were expected to be loyal to their

organizations at all costs. Among the few exceptions to this rule were unionized employees,

who could only be fired for "just cause," and government employees because the courts

upheld their constitutional right to criticize agency policies. In private industry, few real

mechanisms for airing grievances existed although, for example, IBM claimed from its

earliest days, to have an effective open-door policy that allowed employees to raise any issue.

In part because of this lack of protection for whistleblowers, problems were often concealed

rather than solved. Probably the most egregious example was in asbestos manufacturing,

where the link to lung disease was clearly established as early as 1924 but actively

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suppressed by company officials. The first product liability lawsuit against an asbestos

manufacturer was not successfully promulgated until 1971.

The 1970s were notable for cases in which employees who had known of product defects or

hazards decided to "swallow the whistle," as Alan Westin, Henry Kurtz, and Albert Robbins

put it in their book, Whistle-blowing. The result was that consumers and other employees

were seriously harmed; and when the information went public, so were the organizations that

were damaged by awards in the millions.

Even in cases where whistle-blowing occurred, it was not always heeded. In 1972, Firestone

Tire Director of Development Thomas A. Robertson sent top management a memo warning

that the 500 tire was inferior and subject to belt-edge separation at high speeds. His warning

was ignored despite reports about poor performance from major customers such as General

Motors, and the 500 tire was kept on the market. By the time Time magazine reported about

this inferior tires, accidents caused by blowouts had resulted in more than 41 deaths and

hundreds of serious injuries, the company had already replaced 3 million tires and spent

millions of dollars in personal injury lawsuits. If Robertson had received an internal

hearing or blown the whistle externally, such disasters for the public and the company could

have been avoided.

Unfortunately, it appears Firestone did not make the necessary organizational changes to

prevent such debacles, since the story repeated itself in 2000. After an investigation by the

National Highway Traffic Safety Administration, Ford announced a recall and replacement of

3.5 million Firestone tires in October 2000. This recall occurred after 200 deaths and 700

serious injuries had already been reported because of the unsafe tires.

When news of the problem broke in late 2000 and early 2001, it became clear many groups at
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Ford and Firestone had known about the faulty tires as early as 1996. The ultimate result of

inaction by these groups was that Firestone and Ford were called to testify before Congress,

millions of dollars were spent settling lawsuits, and a century-long relationship between Ford

and Firestone was severed in 2001.

There have, of course, been successful cases of whistle-blowing although even in these cases,

the personal and professional toll on the individuals has been heavy. In 1968, Ernest

Fitzgerald, who was in charge of cost evaluations of the C-5A air transport program, found a

cost overrun of $2 billion. Although the Air Force dismissed him, he was reinstated through

legal action. He was, however, demoted. He later won another appeal for reinstatement in his

former position. The reasoning for the actions against him was explained in a memorandum

to John Haldeman of the Nixon White House: "Fitzgerald is no doubt a top-notch expert,

but he must be given very low marks on loyalty; and loyalty is the name of the game."

In 1996, Jeffery Wigand, a tobacco researcher, revealed that Brown & Williamson Tobacco

Corp. knew tobacco was addictive. His revelations had a dramatic impact on public policy

and public perceptions of the tobacco industry. However, although he was vindicated by the

attention he received in the media and by the fact that after his revelations, victims of

tobacco-related illnesses began to be successful in their litigation against the tobacco

companies; he still experienced severe personal consequences including threats against his

family, loss of income, divorce, and the threat of litigation for breach of confidentiality.

Recent Legislative History

In the late 1970s in the wake of the civil rights movement, federal and state laws were

enacted to protect employees in private industry, including anti-discrimination legislation to

regulate hiring and firing policies. Many of these laws contained provisions forbidding an
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employer to retaliate against employees for reporting violations to public authorities.

Complaints about reprisals could be filed with agencies such as the Equal Employment

Opportunity Commission (EEOC) and the Occupational Safety and Health Administration

(OSHA).

In addition, new federal and state legislation, such as the Truth in Lending laws, the Fair

Credit Reporting Act, and the Environmental Protection Act, protected the public from illegal

or unethical business practices. Many of these laws also contained provisions against reprisal

for reporting violations. Although these laws appear to protect whistleblowers, a 1976 study

of OSHA showed only 20 percent of the complaints filed that year were considered valid.

About half of these claims were settled out of court, and of the 60 claims taken to court, only

one was won.

Because of the fear of reprisals, regardless of the legislation available to address issues, Sen.

Patrick Leahy, in a 1977 study entitled The Whistleblowers, reported that "federal employees

are currently afraid to bring problems to the attention of their superiors." In response to such

reports, Congress passed the Civil Service Reform Act in 1978 to protect the rights of

government employees who reported wrongdoing. In 1989, the federal government

extended whistle-blowing protection to nongovernmental employees through the False

Claims Act, which allows private individuals to sue government contractors on behalf of the

U.S. government if they believe the government is being defrauded. This act protects

employees of government contractors against reprisals and also provides incentives to blow

the whistle by allowing the employee to collect at least 15 percent of damages awarded to the

government.

The Whistleblower Protection Act of 1989 extended protections through the Merit Systems

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Protection Board and increased the authority of the Office of Special Counsel created in

1979. These laws protect disclosure of information as well as a government employee's

refusal to participate in wrongful activities at work.

Although many laws protect the whistleblower as employee, supplier, or buyer in a

governmental context, there have been few protections for whistleblowers in private industry.

If an employee suffered retaliation because of whistle-blowing, some legal recourse was

available under state laws, especially in specific industries or classes of people such as

employees exposed to hazardous waste. According to whistleblower advocates like Tom

Devine of the Government Accountability Project, such protections have been inadequate,

and whistleblowers spend many years and dollars trying to prove retaliation. Unless they

were able to gain media attention, whistleblowers in industry faced retaliation from their

employers in the form of dismissal or other personal hardships.

In the 1980s, states began to provide whistleblower protection to employees as a result of the

erosion of the at-will employment doctrine, which until very recently meant that private,

nonunionized employees could be fired for any reason, including blowing the whistle. The

courts began to recognize it was against public policy for employees to be subject to

termination for the exercise of a legislatively created right, such as refusing to break the law

on behalf of an employer. Thus, courts considered it a contravention of the law for an

employer to be able to fire an employee at will for reporting unsafe or illegal conduct.

Currently, all but 15 states provide whistleblower protection.

With the enactment of the Sarbanes-Oxley Corporate Reform Act of 2002, internal and

external whistleblower protection has been extended to all employees in publicly traded

companies for the first time. The provisions of Sarbanes-Oxley

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  Make it illegal to "discharge, demote, suspend, threaten, harass or in any manner

discriminate against" whistleblowers

 Establish criminal penalties of up to 10 years for executives who retaliate against

whistleblowers

 Require board audit committees to establish procedures for hearing whistleblower

complaints

 Allow the secretary of labour to order a company to rehire a terminated employee

with no court hearing

 Give a whistleblower the right to a jury trial, bypassing months or years of

administrative hearings

The passage of this act has created an environment in which many organizations have

realized the importance of instituting ethics policies and codes of conduct to address issues

related to unethical or illegal conduct. The business climate in the wake of Enron and

WorldCom, coupled with Sarbanes-Oxley, is one in which employees can feel more

empowered to report ethical or legal violations.

To Prevent Whistle-blowing, Encourage Whistle-blowing

As the preceding sections illustrate, whistle-blowing to an external entity, such as the media

or government agencies, has been a hazardous activity, both for the individual and the

organization. The ambivalent attitude toward whistleblowers ensures that, even with legal

protection, they may face retaliation in subtle ways: being shunned by co-workers, being

closely supervised, or just feeling alienated.

This section provides some best practices for encouraging employees to bring unethical or
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illegal practices to the forefront and addressing them before they become fatal to an

organization.

The objectives of an internal whistle-blowing program are

 To encourage employees to bring ethical and legal violations they are aware of to an

internal authority so that action can be taken immediately to resolve the problem

 To minimize the organization's exposure to the damage that can occur when

employees circumvent internal mechanisms

 To let employees know the organization is serious about adherence to codes of

conduct

The barriers to a successful internal whistle-blowing program are

 A lack of trust in the internal system

 Unwillingness of employees to be "snitches"

 Misguided union solidarity

 Belief that management is not held to the same standard

 Fear of retaliation

 Fear of alienation from peers

Although companies should seek to remove these barriers, it is also important to

acknowledge that some whistleblowers have less-than-honourable motives. What if the

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whistleblower is retaliating against a supervisor with false accusations? What if the

whistleblower is bringing genuine problems to the fore but is also a subpar employee? In that

case, does the whistleblower get a free pass just because he or she exposed an issue? What

should be done when it becomes clear that encouraging employees to bypass the proper

channels is undermining management decision making? What if whistleblowers participated

in the very actions they are now exposing, perhaps as a means of escaping the consequences

of their participation? What if there is reason to suspect a whistleblower is targeting a specific

employee because of his or her race, gender, or ethnicity? These are just a few of the issues to

be considered in creating a whistle-blowing culture.

Steps for Creating a Whistle-blowing Culture

Create a Policy

A policy about reporting illegal or unethical practices should include

 Formal mechanisms for reporting violations, such as hotlines and mailboxes

 Clear communications about the process of voicing concerns, such as a specific chain

of command, or the identification of a specific person in the organization, such as an

ombudsman or a human resources professional

 Clear communications about bans on retaliation

In addition, a clear connection should exist between an organization's code of ethics and

performance measures. For example, in the performance review process, employees can be

held accountable not only for meeting their goals and objectives but also for doing so in

accordance with the stated values or business standards of the company.

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Get Endorsement From Top Management

Top management, starting with the CEO, should demonstrate a strong commitment to

encouraging whistle-blowing. This message must be communicated by line managers at all

levels, who are trained continuously in creating an open-door policy regarding employee

complaints.

Publicize the Organization's Commitment

To create a culture of openness and honesty, it is important that employees hear about the

policy regularly. Top management should make every effort to talk about the commitment to

ethical behavior in memos, newsletters, and speeches to company personnel. Publicly

acknowledging and rewarding employees who pinpoint ethical issues is one way to send the

message that management is serious about addressing issues before they become endemic.

Investigate and Follow Up

Managers should be required to investigate all allegations promptly and thoroughly, and

report the origins and the results of the investigation to a higher authority. For example, at

IBM, a long-standing open-door policy requires that any complaint received must be

investigated within a certain number of hours. Inaction is the best way to create cynicism

about the seriousness of an organization's ethics policy.

Assess the Organization's Internal Whistle-blowing System

Find out employees' opinions about the organization's culture vis-à-vis its commitment to

ethics and values. For example, Sears conducts an annual employee survey related to ethics.
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Some questions are: Do you believe unethical issues are tolerated here? Do you know how to

report an ethical issue?

Conclusion

Given the prevalence of corporate misconduct in the recent past, whistle-blowing incidents

have been on the rise. A 2002 article in Business Week called 2002 the "Year of the

Whistleblower" and quoted Stephen Meagher, a former federal prosecutor who represents

whistleblowers, as saying that "the business of whistle-blowing is booming." This trend is

likely to be bolstered by the provisions of the Sarbanes-Oxley Act, which for the first time,

accords legal protections to whistleblowers in publicly traded companies. This means

organizations will have to institute rigorous policies to allow employees to bring unethical

and illegal practices to the forefront. Companies will have to train managers and executives

on how to encourage openness, not unlike the sexual harassment training of a decade ago.

Putting processes in place will not be quick, but it is certainly necessary given the increased

public scrutiny of corporate behavior.

Qualifying disclosures

To be protected as a whistleblower you need to make a ‘qualifying disclosure’ about

malpractice. This could be a disclosure about:

 criminal offences

 failure to comply with a legal obligation

 miscarriages of justice

 threats to an individual’s health and safety

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  damage to the environment

 a deliberate attempt to cover up any of the above

There are some disclosures that can’t be qualifying disclosures. You won’t be protected for

whistle-blowing if:

 you break the law when making a disclosure (for example if you signed the Official

Secrets Act as part of your employment contract)

 the information is protected under legal professional privilege (eg if the information

was disclosed to you when someone wanted legal advice)

Protected disclosures

For your disclosure to be protected by the law you should make it to the right person and in

the right way. You must:

 make the disclosure in good faith (which means with honest intent and without

malice)

 reasonably believe that the information is substantially true

 reasonably believe you are making the disclosure to the right 'prescribed person'

If you make a qualifying disclosure in good faith to your employer, or through a process that

your employer has agreed, you are protected. You should check your employment contract to

see if your employer has set out a process for whistle-blowing.

If you feel unable to make a disclosure to your employer then there are other 'prescribed

people' you can make a disclosure to. If you are unsure, you should always get professional

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advice before going ahead. Anything you say to a legal adviser in order to get advice is

automatically protected.

You could make a qualifying disclosure to the person responsible for the area of concern to

you. For example, you might raise concerns about health and safety with a health and safety

representative.

Ghana’s Whistleblowers Act

Ghana has passed the long-awaited Whistleblowers Act. Under the act, disclosures may be

made regarding:

 Breaches or likely breaches of the law;

 Miscarriages of justice;

 Environmental degradation;

 Endangerment of individual and community health and safety; and

 Waste, appropriation or mismanagement of public resources.

The act is the culmination of stakeholder consultations and lobbying by civil society groups

to enhance probity and accountability in the use of government resources. It outlines the

instances and processes through which employees can disclose information on the illegal

conduct or corrupt actions of their employers or fellow employees without fear of retribution.

The law allows the whistleblower to disclose the misuse of public funds to various groups.

Consequently, the whistleblower is presented with several options on whom to disclose the

information to. These include:

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  the whistleblower’s employer;

 a police officer;

 the Attorney General;

 the Auditor General;

 a staff member of the intelligence agencies;

 a member of Parliament;

 the Serious Fraud Office (Now Economic and Organized Crime Office);

 the Commission on Human Rights and Administrative Justice;

 the National Media Commission;

 the Narcotics Control Board;

 a Traditional Chief;

 a Minister of State; or

 the Office of the President.

Where a disclosure is made to any of these persons or institutions, the recipient of the

information must investigate the matter or refer it to the Attorney General or other body as

directed by the Attorney General, who will initiate an investigation into the disclosure.

A whistleblower is not liable to civil or criminal proceedings in respect of the disclosure

unless it is proven that the whistleblower knew that the disclosure was false or that it was

made with malicious intent. Additionally, a provision in an employment contract or other

agreement between an employer and an employee is void if it seeks to preclude or discourage

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an employee from making a disclosure, instituting a court action or claiming a remedy for

victimization.

CONFLICT OF INTEREST

Introduction

Conflict of interest can occur on various levels from the individual to the organization, or

between the internal and the external community. In the end, executives or board members

engaging in a conflict of interest must have used their position to benefit themselves in some

way at the expense of the organization. According to Cooper (2006), conflict of interest

legally is defined as: situations where our personal interests are at odds with our obligations

as a public official or our professional values. There may be combinations of conflicting roles

and tensions between sources of authority, but more typically these occasions simply present

us with an opportunity to use our public office for the sake of our private gain of our friends

or relatives (p.129).

Conflicts of interest from the standpoint of ethics are broader than the legal definition

because the decision to engage in a conflict of interest involves loyalties, concerns and

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emotions in relationships that collide with the organizational and public interests. The main

ethical issue involved in conflicts of interest is a breach of trust to the public. Whatever an

executive or board member engages in also affects the organizations image by the public.

The term Conflict of Interest means any or other interest which conflicts with the service(s)

an individual provides because it could significantly impair the individual’s objectivity and

create an unfair competitive advantage for any person or organization. A conflict of interest is

a situation in which someone in a position of trust, such as a lawyer, insurance adjuster, a

politician, executive or director of a company or a medical research scientist or physician, has

competing professional or personal interests. Such competing interests can make it difficult to

fulfill his or her duties impartially.

Conflicts of interest occur when an officeholder puts his or her personal or financial interest

ahead of the public interest. In the simplest terms, the official reaps a monetary or other

reward from a decision made in his or her public capacity.

Boatright (1992) has stated that conflict of interest occurs when a personal interest interferes

with a person’s acting so as to promote the interest of another when the person has an

obligation to act in that other person’s interest’’. It could also be viewed as “a conflict

between the public duties and private interests of a public official, in which the public official

has private-capacity interests which could improperly influence the performance of their

official duties and responsibilities.”

According to Macdonald (2002), Conflict of interest is a situation in which a person has a

private or personal interest sufficient to appear to influence the objective exercise of his or

her official duties as, say a public official, or a professional. Conflict of interest could also be

viewed as a situation that has the potential to undermine the impartiality of a clash between

the person’s self-interest and professional or public interest.

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From these definitions, there are three elements that can be examined further; the first

element is a private or personal interest. This interest is often a financial one but it could also

be another sort of interest, say, to provide a special advantage to a spouse or child. Taken by

them, there is nothing wrong with pursuing private or personal interest; for instance changing

jobs but the problem which comes with this private interest comes into conflict with the

second element of the definition (official duty), the duty you have because you have an office

or act in an official capacity. As a professional you take on certain official responsibility, by

which you acquire obligations to clients, employers, or others. These obligations are

supposed to trump over private or personal interest. The third element has to do with the fact

that conflict of interest interferes with professional responsibilities in a specific way, namely,

interfering with professional judgement. The major reason why clients and employers respect

professionals is that they expect the professionals to be objective and independent. Factors

such as private and personal interest that interfere or appear likely to interfere with objectivity

are then a matter of concern to the general public.

An apparent conflict of interest is one which a reasonable person would think that the

professional’s judgement is likely to be compromised. A potential conflict of interest

involves a situation that may develop into an actual conflict of interest.

There are various ways that conflicts of interest can occur that are not illegal but may be an

ethical violation of the organization. Ritvo, Ohlsen and Holland (2004) emphasized the

difficulty for people in authoritative positions to live active and ethical lives while facing

challenging decisions. Often the person’s ethical obligations to fulfil job commitments can

interfere with the person spending time with the family or others. For example, how could an

executive inform a higher-authority executive that a daughter’s piano recital comes before a

critical meeting with the executive board members? Morrison (2006) mentioned other types

of ethical conflicts of interest. One is when an individual’s personal behaviour conflicts with

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the organization’s ethics, such as over-indulgence of alcohol or a public use of other drugs.

Because patients safety and competent care are critical to the viability of a health care

organization, personal behaviour outside the organization is extremely important, as is

personal behaviour inside the organization. Nurses, particular, are open to scrutiny by the

public and by hospital officials because of their nursing license and direct care patients.

CATEGORIES OF CONFLICTS OF INTEREST

The following are categories of conflicts of interest identified by Kernaghan and Langford

(1990) in their book “The Responsible Public Servant”;

1. Self-dealing: This occurs where one works with the government and uses one’s

official position to secure a contract for a private consulting company he/she

owns. Or using your government position to get a summer job for your daughter.

2. Accepting benefits: Bribery is one example, and gifts are another.

3. Influence peddling: Here, the professional solicits benefits in exchange for using

his/her influence to unfairly advance the interest of a particular party.

4. Using your employer’s property for private advantage: This could be as

blatant as stealing office supplies for home use. Or it might be a bit more subtle,

say, using software which is licensed to your employer for your private consulting

work of your own without permission.

5. Using confidential information for personal use: Unauthorized distribution of

confidential information, for personal advantage. While working for a private

client, you learn that the client is planning to buy land in your region. You quickly

rush out buy the land in your wife’s name.

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 6. Outside employment or moonlighting: An example would be setting up a

business on the side that is in direct competition with your employer. Another case

would be taken on so many outside clients that you don’t have the time and

energy to devote to your regular employer. In combination with influence

peddling below, it might be that a professional employed in the public service

sells private consulting services to an individual with the insurance that they will

secure benefits from government; if you use my company, I am sure that you will

pass the governmental review;

7. Post-employment: Here a dicey situation can be one in which a person who

resigns from a public or private employment and goes into business in the same

area. For example, a former public servant sets up a practice lobbying the former

department in which he/she was employed.

DEALING WITH CONFLICT OF INTEREST

1. Serving the public interest: Public officials should make decisions and provide

advice without regard for personal gain. The decision maker’s religious, professional,

party-political, ethnic, family, or other personal preferences should not affect the

integrity of official decision making. At the same time, public officials should dispose

of, or restrict the operation of, private financial interests, personal relationships or

affiliations that could compromise official decisions in which they are involved.

Where this is not feasible – an official can hardly be expected to abandon her

relationship with her husband or children in the interests of her job – a public official

should abstain from involvement in official decisions that could be compromised by

private interests.

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Public officials should also avoid taking improper advantage in their private lives from

“inside information” not available to the public that is obtained in the course of official

duties. So public officials should not engage in a private financial transaction which

involves using confidential information obtained at work. In addition, public officials

must not misuse their position and government resources for private gain, such as

awarding a contract to a firm in the hope of obtaining a job with that firm on leaving

public office.

2. Supporting transparency and scrutiny: Public officials and public organisations are

expected to act in a way that will bear the closest public scrutiny. Public officials

should disclose any private interests and affiliations that could compromise the

disinterested performance of public duties when taking up office and afterwards if

circumstances change, to enable adequate control and management of the situation.

Public organisations and officials should also ensure consistency and openness in

resolving or managing conflict-of-interest situations, for example by providing up-to-date

information about the organisation’s policy, rules and administrative procedures

regarding conflict of interest, or by encouraging discussion on how specific situations

have been handled in the past and are expected to be handled in the future. Organisations

should also promote scrutiny of their management of such situations, perhaps by

involving employees in reviews of existing conflict-of-interest policy or consulting them

on future preventive measures.

3. Promoting individual responsibility and personal example: Public officials,

particularly public office holders and senior managers, should act at all times in a

manner that demonstrates integrity and thus serves as an example to other officials

and the public. When dealing with individual cases, senior officials and managers

should balance the interests of the organisation, the individual and the public. Public
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 officials should also accept responsibility for arranging their private affairs so as to

prevent conflicts of interest and for identifying and resolving conflicts in favour of the

public interest when a conflict does arise. So an official could sell a relevant financial

interest, or declare an interest in a particular issue and withdraw from the decision-

making process.

4. Creating an organisational culture: The Guidelines also call on public organisations

to create an organisational culture that does not tolerate conflict of interest. This can

be done in a number of ways, such as raising awareness by publishing the conflict-of-

interest policy, giving regular reminders, developing learning tools to help employees

apply and integrate the policy and by providing concrete advice when the need arises.

Organisational practices should encourage public officials to disclose and discuss real,

apparent or potential conflict-of-interest cases, and provide reasonable measures to

protect them from retaliation. Public organisations should also create and sustain a

culture of open communication and dialogue to promote integrity, while providing

guidance and training to promote understanding.

METHODS TO REDUCE CONFLICTS OF INTERESTS

1. Avoidance: The best way to handle conflict of interest is to avoid them entirely. This

may mean pulling oneself from all identifiable potential conflict of interest situations.

2. Disclosure: As in Ghana where politicians assuming public office have to make

declarations of Assets and interests to the Auditor General and documents can be

assessed by state bodies. In any given situation, office holders have a duty to disclose

any interest to all parties.

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3. Excuse: Those with the conflict of interest are expected to excuse themselves from

(e.g, abstain from) decisions where conflict exists. The imperative for excuse varies

depending upon the circumstance and profession, either as common sense ethics,

codified ethics, or by statute. For example, if the governing board of a government

agency is considering hiring a consulting firm for some task and one firm being

considered has, as a partner a close relative of one of the board’s members, then that

board member should not vote on which firm is to be selected. In fact, to minimize

any conflict, the board member should not participate in any of the decisions,

including discussions.

Judges are supposed to excuse themselves from cases when personal conflicts or

interest may arise. For example if a judge has participated in a case previously as

some other judicial role he or she is not allowed to try that case. Refusals is also

expected when one of the lawyers in a case might be a close personal friend, or when

the outcome of the case might affect the judge directly, such as whether a car maker is

obliged to recall a model that a judge drives. This is required by law under continental

civil court systems and by the Rome statute, organic law of the international criminal

court.

4. Third party evaluations: Third- party evaluation can be used to mitigate conflict of

interest as proof that transactions were; above board’ or fair (arms-length). For

example, a corporation that leases an office building that is owned by the CEO might

get an independent evaluation showing what the market rate is for such leases in the

locale, to address the conflict of interest that exist between the fiduciary duty of the

CEO (to the stakeholders) and the personal interest of that CEO (to maximize the

income that the CEO gets from that office building).

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Case 1:

Betty, the chief nursing officer, had to make a decision about buying 120 new hospital beds

for patient rooms. After she interviewed nurse managers at the units where the beds were

going to be placed, Betty compiled her findings and decided to contact a well-known

equipment company to obtain prices and contracts. The equipment company’s executive sales

person, Jim, discussed options at length with her and invited her and her significant other to

an upcoming all-expense-paid lavish retreat at a five-star hotel in Hawaii to see

demonstrations of the beds and to hear a comprehensive sales pitch. Betty thought to herself,

“We badly need some relaxation and stress relief. Hawaii would be so much fun. Would it be

wrong for us to go?

1. If you were Betty, what should you do? Give your rationale. Justify your answer with

an ethical framework – a theory, approach, or a principle

2. What ethical principles are at stake? What breaches?

3. Do you consider this situation a conflict of interest? Why or why not? Give your

rationale

4. How would Betty handle this case if she believed she needed to seek advice from

someone in a higher authority? With whom would she discuss this issue?

5. What policies should be in place regarding a scenario such as this one?

Case 2:

Savannah, a registered nurse attended a party the night before a schedule 12-hour work day,

overindulged in cocktails, got to bed around 3am, and came to work the next morning at

6:45am with a hangover and alcohol still on her breath. This situation placed Savannah in

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ethical violation of the organization’s values and the Code of Ethics for Nurses, as well as a

legal violation of the state board of nursing, because if alcohol is smelled on her breath, it is

still in the blood stream, which could alter her judgment. Savannah’s altered judgment could

result in unsafe patient care and treatments.

Questions

1. Discuss the ethical implications of Savannah’s partying before work. Do you believe

that Savannah engaged in an ethical conflict of interest? Why or why not? Please

explain your rationale.

2. What ethical violation existed in Savannah’s case regarding her personal behaviour,

the hospital’s ethics and values, patient safety, and the state board of nursing?.

3. What other options could Savannah have considered other than going to work in an

altered state of mind? Make a list of the pros and cons of at least two other

alternatives Savannah could have chosen.

4. Describe and justify how you would have handled this situation had you been

Savannah. Justify your strategies by using an ethical framework – a theory, approach,

or principle.

5. What are the risks of Savannah attending work after drinking so much at the party?

Explain your answer

6. Do you believe that the nursing supervisor should take action against Savannah? Why

or why not? If you believe that the supervisor should take action against Savannah,

describe the specific options for disciplinary action based on your general knowledge

of institutional and state board of nursing disciplinary protocol.

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 CORRUPTION

Introduction

Corruption remains a threat to countries and in fact, corruption has been reported to be the

bane of Africa’s development. Governments after governments have tried to fight this cancer

but the situation seems to be increasing instead. For example Corruption-free society is

another value enshrined in the 1992 constitution. President Kuffour on assumption of office

declared Zero tolerance for corruption. What is corruption and how is it being managed in

Ghana?

It is easy to talk about corruption, but like other complex social phenomena, it is difficult to

define corruption in concise and concrete terms. Not surprisingly, there is no generally

accepted definition on what constitute corruption. The term “corruption” comes from the

Latin word which means “moral decay, wicked behavior, putridity or rottenness”.

According to M. Khan, (1996), “corruption could be defined as behavior that deviates

from the formal rules of conduct governing the actions of someone in a position of

public authority because of private regarding motives such as wealth, power, or status”.

The World Bank and Transparency International define corruption as “the abuse of power for

private benefits”.

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Brooks (1974) defined corruption as the internal mis-performance or neglect of a

recognized duty, or unwarranted exercise of power, with the motive of gaining some

advantage more or less directly’.

 Senturia (1931) sees it as the misuse or abuse of public power for private gains.

 Alatas (1990) characterizes corruption as the abuse of trust for the sake of private

benefits.

R. Kofi Nyantakyi sees corruption as “an act or a conduct of dishonesty committed by

way of omission or commission which is intended to implicitly or explicitly influence,

deviate from and alter the just behaviour and accepted societal propriety in order to

satisfy one’s selfish end or parochial interest”.

From the above, corruption could be thus, said to be any wrongdoing on the part of an

authority or powerful party through means that are illegitimate, immoral, or

incompatible with ethical standards in order to satisfy his or her personal gains. The

practice of corruption among other things tarnishes the image of the organization, and makes

stakeholders lose trust and confidence in such an institution in which it is practiced.

These definitions are fairly embracive of the issues subsumed under corruption but do not

sufficiently bring out what Gire (2001) calls the prioritization process by the individual’- that

is putting self above the collective.

Therefore in this lecture corruption is defined as; the sacrifice of statesmanship on the altar

of partisanship. It is seen as an act that is crafted and undertaken with the deliberate

intent of deriving or extracting personal reward (Werlin, 1994, Dey 1989). Such behavior

may entail theft, the embezzlement of funds, financial mismanagement, and

misappropriation of state property, nepotism and granting of favours to personal

acquaintances, and the abuse of public authority to exact money or other privileges.
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The term corruption is used as a shorthand reference for large range illicit or illegal

activities. Although there is no universal or comprehensive definition of corruption, most

definition shares a common emphasis upon the abuse of public power or position for

personal advantage.

Klitgaard et al in corrupt cities have developed a formula on corruption as; C= M+D-A

where C is corruption, M is monopoly power, D is official discretion and A is

accountability.

Owusu- Frempong (2003) has argued that this formula should attract transparency to make it

C=M+D-A-T.

According to the Anin report, Bribery and corruption involve both the giving and the

receiving of a gift, or attempts to extort a gift- a valuable consideration whether in cash or

kind-with the object of influencing a person in a position of trust to act in a way favourable to

the interest of the giver’. Justice Anin’s commission of Inquiry into bribery and corruption

identified one hundred and sixty-two separate activities where corruption was practiced.

Justices Anin’s report enumerated among others, the following corrupt activities; Priests

extracted gifts from bereaved families of non-church goers in exchange for burying the

dead. Churches encourage the possession of material things instead of fighting

corruption. Their demand for money has become insatiable. Rich people are given

prominent seats and recognition at churches and functions irrespective of how they get

their money. Devout members of no substance are belittled. The churches

condemnation of corruption, fraud and greed, and not dishonesty is at best

accommodating. The rich are idolized and worshipped and the poor are tempted to

emulate their nefarious activities, thus perpetuating corruption in society. Other

corrupt practices include employment and posting of teachers, certificate of contract

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work, issue of import and export permits, waiving or exemption of custom duties by

custom officers, collusion of police with offenders, improper closure of police dockets,

allocation of market stalls, granting of privileges to prisoners, court judgments by

magistrates and judges, staff appointments, promotion and transfers and even

mortuary attendants demand payment before releasing dead bodies to relatives, match

fixing and others. The list is shockingly endless.

In a paper delivered at a roundtable discussion organized by the Institute of Economic

Affairs, Dr. Ken Attafua among others had this to say “the cost of corruption is enormous,

covering the loss of development funds, retardation of economic growth, flight of capital, and

inflation of administrative costs. Corruption also frequently results in the loss of legitimacy

and respect for legally constituted authority by among other things, undermining the integrity

of the socio-legal foundations of that authority. It debases the moral fibber of a society by

nibbling away at the core values that bond the society together. In this sense, corruption is

decidedly dysfunctional to the maintenance of a just social order”

FORMS OF CORRUPTION

Corruption can be categorized in various ways. Ofori-Kwafo (2003) has put corruption into

the following categories;

 Petty Corruption: This involves relatively minor amounts of money or gifts

changing hands. One of the parties could be a relatively minor official in an

organization where the bribery is taking place. A key characteristic of petty

corruption is that it takes place many times (high frequency). Included in this type are

bribes to traffic police.

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  Grand Corruption: Corruption involving substantial amounts of money engaged in

by businessmen and government officials of senior rank and the figures involved are

significant. Kickbacks to government officials for public works contracts fall under

this category.

 Looting (Lootocracy): This is the type of corruption that involves the illegal transfer

of money or goods from one person or destination to another. It usually involves

scams/scandals that are so huge that when they have been successfully concluded;

they have macroeconomic implication fairly quickly such as banks collapsing,

inflation rising and declining exchange rate. Usually under the direction of powerful

political actors and involves paying for big service contracts that are never delivered.

Funds are usually used to fund elections or private militias.

The difference between grand corruption and looting is that in grand corruption, the kick

back is usually a fraction of the project but the project is completed though with bad quality.

In looting, the kick back is the whole amount (100%) and the project is never completed and

sometimes never started.

 Systemic/ Routine Corruption: This type of corruption occurs where bribery is

regularly and frequently experienced. It takes place where wrong doing has become

the norm and common where officers that have regulatory services such as licenses,

permits, immigration are issued.

 Political/ Bureaucratic Corruption: This type involves violation of election laws,

campaign finance regulations and conflicts of interest rules of parliamentarians. Also

found where power is highly centralized in a patronage-based political system and

friends are rewarded. Funding comes from forced or voluntary business contributions

or diverting government revenue or donor aid.

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TYPES OF CORRUPTION

The issues or factors included in this definition are so broad to warrant a further refining for

the nature and scope of this article. In an elaborate analysis, Alatas (1990) gave a typology of

corruption; this provided seven distinct types or categories of corruption;

1. AUTOGENIC; Autogenic corruption is self generating and typically involves only

the perpetrator. A good example would be what happens in the case of insider

trading. A person learns some vital information that may influence stocks in a

company and either quickly buys or gets rid of large amounts of stocks before the

consequences arising from this information come to pass.

2. DEFENSIVE; Defensive corruption involves situations where a person needing a

critical service is compelled to bribe in order to prevent unpleasant consequences

inflicted on his interests. For example a person wanting to travel to Japan on a

business trip within a certain time frame needs a passport in order to undertake the

journey but is made to pay bribe or (unofficial money) or forfeits the trip. This person

is in self defence.

3. EXTORTIVE; Extortive corruption is the behavior of a person demanding personal

compensation in exchange for services.

4. INVESTIVE: Investive corruption entails the offer of goods or services without a

direct link to any particular favour at the present but with the anticipation of future

situations when the favour may be required.

5. NEPOTISTIC; Nepotistic corruption refers to the preferential treatment of, or

unjustified appointment of friends or relations to public office, in violation of the

accepted guidelines.

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 6. SUPPORTIVE: The supportive type usually does not involve money or immediate

gains, but involves actions taken to protect or strengthen the exciting corruption. For

example a corrupt official may try to prevent the election or appointment of an honest

District Chief Executive, Mayor, local council member or the regime for the fear that

the individual or group or person or government might be probed by their

successor(s) and

7. TRANSACTIVE: Finally, transactive corruption refers to situation where the two

parties are mutual and willing participants in the corrupt practice to the advantage of

both parties. For example a corrupt business may willingly bribe a corrupt

government official in order to win a tender for a certain contract.

CAUSES OF CORRUPTION

Institutionalized patterns, attitudes and behaviors

 Parochialism

 Kinship, tradition, gift- giving

 Patron- client network

Market corruption; systematic corruption

 Scarcity of employment opportunities

 Inefficient regulatory regime

 Excessive bureaucratic structures/ bottlenecks

 Green and unnecessary materialism

 Politicization of the bureaucracy

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CONTROL / REMEDIALS SRATEGIES

 Socialization agencies

 Family

 Peer group, schools

 Mass media

 Establish anti- institutions, CHRAJ, SFO/EOCO, Office of Accountability

 Public education- e.g., Vice President campaign against indiscipline

 Churches / religious groups

 Political Parties

 Stiffer punishment/ sanctions

 Prosecution/ Public Display of officers etc.

EFFECT OF CORRUPTION ON NATIONAL DEVELOPMENT

Corruption involves the improper and unlawful behavior of public- service officials, both

politicians and civil servants, whose positions create opportunities for the diversion of money

and assets from government to them and their accomplices.

This situation creates some negative effects on the nation including;

1. Corruption leads to low productivity and it’s a potential source of poverty. It is a

disincentive to productive work if one can benefits without much work

2. Corruption constrains investment and retards growth. Investors are asked for

bribes before setting up enterprises and become a tax to them and discourage

investment. Without investment, economic growth is regarded as jobs will not be

created social amenities will not develop.

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 3. Corruption leads to low quality social infrastructure; this affects movement of

goods and services leading to shortages.

4. Corruption is a disincentive to domestic savings; where banks collapse due to non-

performing loans and people lose confidence in banks and hoard their money making

it unavailable for investors to borrow for productive use.

5. Corruption, if not checked, leads to impunity; a culture develops where every one

flows with the system.

CONSTITUTIONAL MEASURES PUT IN PLACE TO COMBAT CORRUPTION IN

GHANA

Below are some of the measures put in place to combat corruption; political leaders coming

out boldly to declare their assets before assuming political power, political leaders coming

out with proclamations like probity, integrity and accountability, zero tolerance for

corruption, embarking on anti-corruption activities like retrieving assets that have been

embezzled by public officials’. Using the mechanisms bequeathed to us by colonial rule, that

is, parliament, courts, police and audit service to deal with corruption.

The new legal, constitutional and democratic approach to fighting corruption in Africa is

reflected in the emergence of constitutionalism following the promulgation of more or less

liberal constitutions in the 1990s. The new constitutions typically describe limited

government, formal separation of powers, checks and balances, judicial independence and the

protection of civil liberties and freedoms.

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Following the new legal, constitutional and democratic approach to fighting corruption, the

1992 Republic Constitution has enumerated some measures to curb corrupt practices in

Ghana. Article 35 (8) of the Constitution states that “the State shall take steps to eradicate

corrupt practices and the abuse of power”. The above declaration is re-emphasize with more

urgency in sections 179C (a) and (b) of Act 458 which amended the Criminal Code of 1960

as follows “Any person who;

(a) While holding a public office corruptly or dishonestly abuses the office for private

profit or benefits; or

(b) Not being a holder of a public office acts or is found to have acted in collaboration

with a person holding public for that latter to corruptly or dishonestly abuse the office

for private profit or benefit commits an offence.”

1. Commission of Human Rights and Administrative Justice (CHRAJ). The

functions and powers of the Commission are mainly derived from the constitution

(Article 218) and the Commission’s Act (Act 456) of 1993. Article 218(a) and (e) of

the constitution for instance empowers the Commission to:

a. Investigate complaints of violation of fundamental human rights and freedoms,

injustice, corruption, abuse of power and unfair treatment of any person by a

public officer in the exercise of his official duties

b. To investigate all instances of alleged or suspected corruption and

misappropriation of public moneys by officials and to take appropriate steps,

including reports to the Attorney-General and Auditor-General, resulting from

investigations.

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 Examples of some investigations carried out by CHRAJ include; the case of Dr.

Richard Anane during President Kufour’s administration and the Marbel and

Johnson case involving some Ministers in President Mill’s administration.

2. Serious Fraud Office (SFO): the SFO is a specialised agency of government which

is established to monitor, investigate and on the authority of the Attorney-General,

prosecute any offence involving serious financial or economic loss to the state. Act

466 of 1993 gives the SFO the power to investigate any suspected offence provided

for by law which appears to the Executive Director on reasonable grounds to involve

serious financial or economic loss to the state or to any state organisation or

institutions in which the state has financial interest.

3. Auditor-General’s Office: Article 187 of the 1992 Republican Constitution

mandates the Auditor-General to “audit the public accounts of Ghana and of all public

offices...” the Auditor-General is also required to “present his report to Parliament

within six months after the end of each financial year, drawing attention not only to

irregularities but also to any other matter in his opinion should be brought to the

attention of parliament. Through this article, the Auditor-General has brought to light

several cases of corruption, embezzlement, misapplication of public funds.

4. Code of Conduct/Conflict of Interest: article 284 of the 1992 Constitution has a

code of conduct for public officers. For instance, article 284 states that “a public

officer shall not put himself in a position where his personal interest conflicts or is

likely to conflict with the performance of the function of his office”.

Again, Article 285 states that “no person shall be appointed or act as the chairman of

a governing body of a public Corporation or authority while he holds a position in the

service of that corporation or authority”.

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 In addition to the Constitutional provision, the Civil Service has its own Code of

Conduct (1993) which spells out the relationship between the Civil Servant and its

principal stakeholders.

5. Asset Declaration: in addition to the above, the 1992 constitution requires certain

categories of public officials to declare their assets and liabilities under the following

constitutional provisions; (article 286);

a. Within three (3) months after coming into force of the constitution or before

taking office as the case may be;

b. At the end of every four (4) years.

c. At the end of his term of office. This article also disqualifies people from holding

specific public office as a result of adverse findings made or criminal conviction

against individuals and to provide for related purposes.

6. Parliament: the constitution also gives parliament the power to hold public officials

accountable for their actions or inactions. This can be found in article 103:3 in the

form of;

a. Question time in Parliament

b. Public Accounts Committee of Parliament

c. During vetting of public officials.

7. Setting up Commissions of Inquiry: Article 278 of the 1992 Constitution gives the

President, Cabinet and Parliament the ability to set up a commission of inquiry when

they feel it is in the best interest of the nation. The Article states that “the President

shall by Constitutional Instrument, appoint a Commission of Inquiry into any matter

of public interest where-

a. The President is satisfied that a commission of inquiry should be appointed, or

b. The Council of State advises that it is in the public interest to do so; or

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 c. Parliament, by a resolution request that a commission of inquiry be appointed to

inquire into any matter, specified in the resolution as being a matter of public

interest.

Many Commissions of Inquiries have been set up in the country to handle cases that are

considered important to the interest of the public. A classic example of a commission of

inquiry set up to look into the cause of bribery and corruption and bring out recommendations

was the Justice Anin’s commission of Inquiry. A recent commission set up to look into the

cocaine scandal was the Justice Georgina Wood Commission or Committee. The Minister of

the Interior, Mr. Kan-Dapaah in his reaction to the Georgina Wood Commission of Inquiry in

the Daily Graphic of September 30, among others had this to say “The committee further

found from the recorded discussions other acts of corruption, abuse of office, professional

misconduct and unsatisfactory service on the part of A.C.P. Boakye”.

8. Public Disclosure Act: In addition to the above, another measure to combat

corruption and encourage ethics is the “Protected Public Interest Disclosure Act”

referred to as the “Whistle-Blower” Act 2006, (Act 720). As part of the need to

reduce corruption to be able to achieve the necessary poverty reduction, meet the

Millennium Development Goals and move Ghana into the middle income country, a

bill to encourage and protect whistle blowing was enacted in 2006. The proposed bill

presented to Parliament after various consultations was to provide for the manner in

which individuals may in the public interest disclose information that relates to

unlawful, corrupt or other illegal conduct or practices in the country. The Bill ensures

that persons who make the disclosures are not subjected to victimization, recognizes

that corrupt and other illegal conduct in the organs of State, the private sector and

other institutions in society undermines efficiency, accountability and transparency in

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 governance and good corporate practice. It was therefore important to establish a

mechanism that will lead to the detection of criminal, corrupt and other illegal

conduct as a way of promoting good governance.

The Bill further explains that it does not in any way affect in any manner the role of

informants. Security agencies can therefore continue to solicit and receive complaints whose

identity may not be disclosed. After consultations with different stakeholders led by members

of the Ghana Anti-Corruption Coalition, the bill was passed by Parliament and given assent

on 20th October 2006. Under this new act, disclosures may be made regarding: breaches or

likely breaches of the law; miscarriages of justice; environmental degradation; endangerment

of individual and community health and safety; and waste, appropriation or mismanagement

of public resources.

The act is the culmination of stakeholder consultations and lobbying by civil society groups

to enhance probity and accountability in the use of government resources. It outlines the

instances and processes through which employees can disclose information on the illegal

conduct or corrupt actions of their employers or fellow employees without fear of retribution.

The law allows the whistleblower to disclose the misuse of public funds to various groups.

Consequently, the whistleblower is presented with several options on whom to disclose the

information to. These include: a staff member of the intelligence agencies; a Member of

Parliament; the Serious Fraud Office; the Commission on Human Rights and Administrative

Justice; the National Media Commission; the Narcotics Control Board; a traditional chief; a

minister of state; or the Office of the President.

Where a disclosure is made to any of these persons or institutions, the recipient of the

information must investigate the matter or refer it to the attorney general or other body as

directed by the attorney general, who will initiate an investigation into the disclosure. A

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whistleblower is not liable to civil or criminal proceedings in respect of the disclosure unless

it is proven that the whistleblower knew that the disclosure was false or that it was made with

malicious intent. Additionally, a provision in an employment contract or other agreement

between an employer and an employee is void if it seeks to preclude or discourage an

employee from making a disclosure, instituting a court action or claiming a remedy for

victimization.

The whistleblower’s role in strengthening public sector corporate governance cannot be

overemphasized. It provides a check on the actions of persons charged with the management

of institutions that use public funds.

9. Public Procurement Act, 2003: Over a period of time, public procurement in Ghana

has been characterized by unclear legal framework, lack of harmonized procedures

and weak institutions for managing the procurement process. Responding to this

challenge as a measure of combating corruption, the government after a major review

of the public expenditure system in 1993 designed a comprehensive Public Finance

Management Reform Programme (PUFMARP). This led to the enactment of the

Public Procurement Act, 2003 (Act 663). This Act establishes the Public Procurement

Authority which makes administrative and institutional arrangements for procurement

and also stipulates tendering procedures. Thus, the act deals with procurement

structures, procurement rules, methods of procurement and tendering procedures. It

also deals with submission of tenders and methods and procedures of engaging the

services of Consultants. Section 3 of Act 663 provides for the functions of the

Authority as to:

a. Makes proposals for the formulation of policies of procurement;

b. Ensure policy implementation and human resource development for public procurement

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c. Develops draft rules, instructions, other regulatory documentation on public procurement

and

d. Develops draft rules, instructions, other regulatory documentation on public procurement

and formats for public procurement documentation;

e. Monitor and supervise public procurement and ensure compliance with statutory

requirements;

f. Have the right to obtain information concerning public procurement from contracting

authorities;

g. Establish and implement an information system relating to public procurement;

h. Publish a monthly Public Procurement Bulletin which shall contain information germane

to public procurement, including proposed procurement notices, notices of invitation to

tender and contract award information;

One of the achievements of the Public Procurement board is enhanced transparency and

fairness in tendering process. Procurement reform has become a key governance issue. It was

also one of the considerations for which Ghana received 100 percent debt relief from the

Millennium Challenge Fund Account from the United States Government. Competition in

public procurement is also increasing. This is a testimony that the procurement reform is

beginning to achieve one of its key objectives i.e., transparency, accountability and openness.

Currently, newspapers publish notices for procurement regularly.

10. The Anti-Money Laundering Act, 2007 (Act 749) is also one of the measures put in

place to reduce corruption and enhance ethics. Sections 1 and 2 of the Anti-Money

Laundering Act, 2008 (Act 749) criminalize money laundering in Ghana. The

elements of money laundering include conversion disguise, acquisition, and use of

transfer of property knowing that the property is or forms part of the proceeds of

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 unlawful activity. One of the measures taken under the Act to prevent money-

laundering is the creation of the Financial Intelligence.

The centre has as its core object, the identification of proceeds of unlawful activity,

making information available to investigating authorities, intelligence agencies and

revenue agencies to facilitate the administration and enforcement of laws of the

Republic. The core function of the centre is to gather intelligence.

The Act also requires accountable institutions to identify their customers, keep

records of identity and transactions and report suspicious transactions. (Anti-money

laundering Regulations) provide for the regulatory framework for the Anti-Money

Laundering Act.

11. Internal Audit Agency Act, 2003 (Act 658) is an additional measure to enhance

ethics and reduce corruption. The Act seeks to establish a central agency of

government to co-ordinate, monitor and supervise internal audit activities within

Government Ministries, Departments and Agencies. The Act creates standards and

procedures for the conduct of internal audit activities intended to secure transparency

and avoid the incidence of corruption.

In conclusion it could be said that, corruption thrives best in environments that are

characterized by administrative caprice, weak institutional mechanisms for safeguarding

citizen’s rights and disregard for fundamental human rights, values, principles and norms.

These notwithstanding, the effective control of corruption apart from what has been

discussed, demands a comprehensive programme of improvement in the human rights

situation and the expansion of the scope of citizen enjoyment of administrative justice in the

country.

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 CHAPTER SIX

CORPORATE SOCIAL RESPONSIBILITY

The term corporate social responsibility is now a celebrated concept in business circles as

most organizations now have incorporated social responsibility into their business operations.

In fact, businesses now use CSR as a strategy to appeal to the conscience of customers and

society regarding how ethical they are with respect to their responsibility to society. Students

will be introduced to the concept and theories and therefore, students will be expected after

going through this chapter be in the position to:

 Explain the concept of CSR

 Evaluate the relevance of CSR to contemporary business organization

 Relate theories of CSR to business ethics

 Dimensions of CSR

 Accountability and CSR

Introduction

The development of a country is not solely the responsibility of the government; every citizen

should take part in achieving social welfare and improving the quality of life of the

community. The business world’s role is to increase healthy economic growth, taking

environmental issues into account. Nowadays, the business world does not focus only on the

financial aspect (single bottom line); it considers financial, social and environmental

aspects (triple bottom line). The definitions of CSR are many and may refer to ethical

behaviour, sustainable development, the environment, and to philanthropic ideas. It is

important that organizations are committed to fulfilling expectations and moral obligations at

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the level of society. This means that right conduct takes into account the welfare of the larger

society.

And more recently, McWilliams and Siegel (2001:117) define it as “… actions that appear to

further some social good, beyond the interests of the firm and that which is required by law”.

While the CSR construct is a new coinage, it is not a new practice. It could be traced back to

such examples as the Quakers in 17th and 18th centuries whose business philosophy was not

primarily driven by profit maximisation but by the need to add value to the society at large –

business was framed as part of the society and not separate from it. The resurgent interest in

the practice provides a fertile ground for different discourses and actors, which lends it to

multiple and contested constructions (Moon 2002). Corporations around the world are

struggling with a new role, which is to meet the needs of the present generation without

compromising the ability of the next generations to meet their own needs. Organizations are

being called upon to take responsibility for the ways their operations impact societies and the

natural environment. They are also being asked to apply sustainability principles to the ways

in which they conduct their business.

Robbins and Decenzo (2001) see social responsibility as the obligation of a firm, beyond

that required by law or economics, to pursue long-term goals that are good for society.

Hopkins (2003), state that CSR is the ethical, responsible and integrated business

implementation applied to all operations. Lesmana, (2007) opines that corporate social

responsibility (CSR) is one of the roles performed by the business world and it is aimed

at encouraging business entities to run their activities ethically, minimizing bad effects

on communities and the environment so that, ultimately, they can continue to carry on

gaining economic benefit as their objective.

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Presently, the ideal definition of CSR is given by The World Business Council for

Sustainable Development (2001) and cited in Jamali (2006) as a business commitment that

contributes to sustainable economic development through team work with employees

and their representatives, their families, and local and public communities, to improve

the quality of life by means of beneficial ways both for the business itself and for

development.

Corporate Social Responsibility (CSR) is also known as Corporate Citizenship, Global

Citizenship and Corporate Accountability. While some may argue over the distinctions

among these terms, at the core they all point towards the same fundamental principle: that a

company is responsible for providing more benefits than just profits for shareholders. It

has a role to play in treating its employees well, preserving the environment, developing

a sound corporate governance, supporting philanthropy, fostering human rights,

respecting cultural differences and helping to promote fair trade, among others. All are

meant to have a positive impact on the communities, cultures, societies and environments in

which companies operate.

According to the Commission of the European Communities (2001) and cited in Jones et al.,

2006), the activities of CSR have been categorized in two dimensional approaches, i.e.

internal and external and have to be implemented in three aspects, i.e. economic, social

and environmental (Jamali, 2006). The internal dimensions include human resource

development management, health and safety at work, adaptation to changes, and

environmental and natural resources effect management. The external dimension consists

of a wider area, including investors, the local community, business partners, suppliers

and consumers, human rights, and global environmental care.

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Sustainability refers to an organization’s activities, typically considered voluntary, that

demonstrate the inclusion of social and environmental concerns in business operations and in

interactions with stakeholders (van Marrewijk & Verre, 2003).

It is no longer acceptable for a corporation to experience economic prosperity in isolation

from those agents impacted by its actions. A firm must now focus its attention on both

increasing its bottom line and being a good corporate citizen. Keeping abreast of global

trends and remaining committed to financial obligations to deliver both private and public

benefits have forced organizations to reshape their frameworks, rules, and business models.

To understand and enhance current efforts, the most socially responsible organizations

continue to revise their short- and long-term agendas, to stay ahead of rapidly changing

challenges. Corporate responsibility or sustainability is therefore a prominent feature of the

business and society literature, addressing topics of business ethics, corporate social

performance, global corporate citizenship, and stakeholder management. Management

education can be an important source of new ideas about shifting toward an integrated rather

than fractured knowledge economy, but this means also that the role and meaning of socially

responsible leadership needs to be updated. Much further research is needed to create a

clearer understanding of what is required, both in leadership itself and in the field of

leadership development.

Responsibilities of a Corporate Body

Carroll, (2000) states that organizations are expected to practice “social responsibility” or be

a good “corporate citizen”. Carroll (1979) argues that corporations should not only be judged

on their economic success but also on non-economic criteria. To fulfill the good corporate

citizen role, a corporation should fulfill the following responsibilities (Carroll, 2000):

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 1. Economic: Earn a fair return on capital to satisfy the shareholders, deliver value for

money products to satisfy customers, create new jobs and new wealth for the

business, and promote innovation.

2. Legal: Comply with the law.

3. Ethical: Be moral, fair, just, respect people’s rights, avoid harm or social injury and

prevent harm caused by others.

4. Philanthropic: Perform beneficial activities for society.

Lantos (2001) cited in Wan-Jan (2006) on the other hand put CSR into three categories:

1) Ethical CSR: He sees ethical CSR as all expectations of the company to be

responsible morally in preventing loss and damage as a result of its activities. This

CSR is expected from all companies and stands as the minimum requirement fulfilled

by the company.

2) Altruistic CSR: Defined as a caring form that is forfeited by the company.

3) Strategic CSR: This means corporate care activities implemented to complete the

company’s business strategic objective.

Dimensions of CSR

The Global Reporting Initiative (2001) stated the key dimensions of CSR or triple bottom

line. The first is economy. In this dimension, CSR should delve into more than traditional

financial accountancy by looking into new measurements of wealth, like HRD and the

intellectual capital developed by the company.

Examples would be reducing business costs through appropriate business integrity policy,

and increasing employees’ productivity by conducting research and HRD development and

also employee training.

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The second dimension is the environment. This means that CSR should study the

implications of resource and energy usage, and the company’s effect on the integrity of the

environment. Examples of this would include environmental policy and audit, and

environmental responsibility management.

The third dimension is social. In this dimension CSR should maximize the positive influence

of the company’s operations to a wider community. Examples of this would include

community health problems, social justice, and inter- and intra-organizational justice.

In addition to the above three dimensions, scholars have made references to two (2) other

dimensions of CSR which are sustainable development and reputation:

Sustainable development: The CSR program implemented by a company should be a

sustainable development program, since it will give a better positive outcome and benefits to

the company and its stakeholders. Furthermore, a sustainable CSR program will help to

establish a prosperous and independent community (Lesmana, 2007). According to the World

Business Council on Sustainable Development (2001), a sustainable development is a

development that fulfills current needs without sacrificing the ability of future

generations in fulfilling theirs (Porter and Kramer, 2006). The International Institute for

Sustainable Development and Deloitte & Touche also defined sustainable development for

business entities as a process of adopting business strategies and activities to fulfill the

present company’s needs and the needs of stakeholders as well as protecting, supporting and

increasing the human and natural resources needed in the future (Labuschagne and Brent,

2005; cited in Malovics et al., 2007). A sustainable development does not focus on

environmental issues only. Its policy covers three public areas: Economy, Social issues; and

the environment (Lesmana, 2007).

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Reputation: The social responsibility of a company is recognized as an aspect, an appeal and

an activity that influences its reputation (Zyglidopoulos, 2001; Fombrun and Shanley, 1990;

Carroll, 1979; all cited in Siltaoja, 2006). Deephouse (2000) and Fombrun (1996, 1998; all

cited in Siltaoja, 2006) revealed that reputation is often defined as the most important

competitive excellence a company can have. For Brown and Logsdon (1999; cited in Siltaoja,

2006), reputation is a long-term combination of an outsider’s view of the organization,

how well the organization executes its commitments and fulfills stakeholders’

expectation, and how effective the organization’s performance is according to its soc-

political environment. Accountability and sustainability are certainly used in assessing the

company’s reputation. For business world and community, the concepts of accountability and

sustainability can be developed consistently to the power and capacity of the company, to act

according to the company’s and the worlds interest together (Freeman, 2006).

Lewis (2003) has described six criteria for a company’s reputation:

 Product/service quality;

 Financial performance;

 Dealing with employees;

 Environmental responsibility;

 Social responsibility; and

 Leadership.

Porter and Kramer (2006), in the context of a sustainable CSR programs implemented by a

company, suggested that CSR is more than a cost, an obstacle or charity – CSR can be an

opportunity, an innovation and a competitive excellence. Furthermore, Porter and Kramer

(2006) revealed that strategically, CSR can be the source of excellent social advancement,

similar to a business whose application of resources, professionals and knowledge is suitable

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to be considered in beneficial activities for the community. Companies should now invest in

sustainable CSR programs as a part of their business strategy (Porter, 2003) and implement

them accordingly (Lewis, 2003) to achieve further excellence. The key factor that initiates

CSR is stakeholders’ expectations that an investment decision should generate not only

financial profit, but should also take into account the social and environmental aspect so that

community welfare can be improved (Robin, 2005; Commission of the European

Communities, 2001; both cited in Malovics et al., 2007).

CSR and Accountability

Accountability is one of the processes whereby a leader, company, or organization seeks to

ensure integrity. In a global stakeholder society, accountability is among the key challenges

of organizations. Responsible leaders are concerned with reconciling and aligning the

demands, needs, interests, and values of employees, customers, suppliers, communities,

shareholders, nongovernmental organizations (NGOs), the environment, and society at large.

A company’s track record in terms of CSR accounting will be effective when appropriate

CSR measures are included in its internal as well as its supply-chain activities. Furthermore,

the literature reflects a growing need for dissemination of good practice in CSR

accountability and a need for more pressure to be exerted on NGOs to prove themselves as

ethical, transparent, and accountable as those they seek to influence (Frame, 2005). A

relevant point raised in some literature has to do with the effectiveness of strategies

undertaken by communities to demand corporate accountability (Garvy & Newell, 2005).

This literature argues that the success of community-based strategies for corporate

accountability is conditional upon the right combination of state, civil, societal, and corporate

factors.

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Frynas (2005) makes the point that accountability is more than making false promises. In the

oil, gas, and mining sectors, despite the promise of CSR and the spending of over US $500

million in 2001 alone on a long list of community development programs and other CSR

initiatives, the effectiveness of the initiatives has been increasingly questioned. Frynas points

out that there is mounting evidence of a gap between the stated intentions of business leaders

and their actual behavior and impact in the real world of financial funding. CSR requires

accountability by all leaders, individuals, organizations, stakeholders, customers, and

community members, and yet accountability is complex. The factors which influence the

effectiveness of corporate accountability are multiple and tightly interconnected. This

interconnectedness and its relationship to accountability are represented in the work of Dolan

(2004), which uses the example of his own company to illustrate the idea of considering a

business as an interconnected web of relationships, with the consequences of every action the

company takes having an impact on both the world and the company’s long-term business.

Theories of Corporate Social Responsibility (CSR)

The CSR is well understood when viewed from a theoretical perspective. This section

discusses relevant theories of CSR.

Stakeholder theories

The stakeholder theory of the firm is used as a basis to analyse those groups to whom the

firm should be responsible. As described by Freeman (1984), the firm can be described as a

series of connections of stakeholders that the managers of the firm attempt to manage.

Freeman's classic definition of a stakeholder is ``any group or individual who can affect or

is affected by the achievement of the organization's objectives'' (Freeman, 1984).

Stakeholders are typically analysed into primary and secondary stakeholders. Clarkson

(1995) defines a primary stakeholder group as ``one without whose continuing

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participation the corporation cannot survive as a going concern'' with the primary group

including ``shareholders and investors, employees, customers and suppliers, together with

what is defined as the public stakeholder group: the governments and communities that

provide infrastructures and markets, whose laws and regulations must be obeyed, and to

whom taxes and obligations may be due''. The secondary groups are defined as ``those who

influence or affect, or are influenced or affected by the corporation, but they are not

engaged in transactions with the corporation and are not essential for its survival''.

In terms of the issue of social responsibility, the central issue is whether stakeholder analysis

is part of the motivation for business to be responsible and, if so, to which stakeholders.

Hamil (1999), adopting Donaldson and Preston's (1995) typology, finds that corporate

giving is nearly always instrumental. An important question that has been addressed is to

which groups do managers pay attention? Mitchell et al. (1997) develop a model of

stakeholder identification and salience based on stakeholders possessing one or more of the

attributes of power, legitimacy and urgency. Agle et al. (1999) confirm that the three

attributes do lead to salience. Thus, we might anticipate that firms would pay most attention

to those legitimate stakeholder groups who have power and urgency. In practice this might

mean that firms with problems over employee retention would attend to employee issues and

those in consumer markets would have regard to matters that affect reputation.

Stakeholder groups may also become more or less urgent; so environmental groups and

issues became more urgent to oil firms following the Exxon Valdez oil spill (Patten, 1992).

We note from the current commercial approaches to CSR that stakeholder analysis is

important, but that the rationale remains largely instrumental (WBCSD, 1999; Business

Impact, 2000). However, there are elements that are also normative. For example, Business

Impact begins by advocating that CSR should be based against set purposes and values,

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nevertheless such purpose and values are also linked to ``contributing to [the firm's]

reputation and success'' (Business Impact, 2000).

Social Contract Theory

Gray et al. (1996) describe society as ``a series of social contracts between members of

society and society itself''. In the context of CSR, an alternative possibility is not that

business might act in a responsible manner because it is in its commercial interest, but

because it is part of how society implicitly expects business to operate. Donaldson and

Dunfee (1999) develop integrated social contracts theory as a way for managers to take

decisions in an ethical context. They differentiate between macro-social contracts and

micro-social contracts. Thus a macro-social contract in the context of communities, for

example, would be an expectation that business provide some support to its local community

and the specific form of involvement would be the micro-social contract. Hence companies

who adopt a view of social contracts would describe their involvement as part of ``societal

expectation'', however, whilst this could explain the initial motivation, it might not explain

the totality of their involvement.

Legitimacy Theory

Suchman (1995) defines legitimacy as ``a generalized perception or assumption that the

actions of an entity are desirable, proper, or appropriate within some socially

constructed system of norms, values, beliefs and definitions''. Bringing together prior

literature on legitimacy management including the strategic tradition of resource dependence

theory (Pfeffer and Salancik, 1978) and the institutional traditions (DiMaggio and Powell,

1983), he identifies three types of organisational legitimacy: pragmatic, moral and cognitive.

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He further identifies three key challenges of legitimacy management: gaining, maintaining

and repairing legitimacy. Suchman points out that ``legitimacy management rests heavily on

communication''. Therefore in any attempt to involve legitimacy theory, there is a need to

examine some forms of corporate communications.

Thus there is a need to examine any particular corporate behaviour within its context and in

particular to look for alternative motivations. Thus legitimacy might be seen as a key reason

for undertaking corporate social behaviour and also then using that activity as a form of

publicity or influence (Lindblom cited in Gray et al., 1996 and in Clarke, 1998). A converse

view to this, i.e. not that business uses its power to legitimate its activity but, rather that

society grants power to business which it expects it to use responsibly, is set out by Davis

(cited in Wood, 1991): ``Society grants legitimacy and power to business. In the long run,

those who do not use power in a manner which society considers responsible will tend to lose

it.'' In effect, this is a re-statement of the concept of a social contract between the firm and

society.

Why CSR has become Important

Many factors and influences have led to increasing attention being devoted to the role of

companies and CSR. These include:

 Sustainable development: United Nations’ (UN) studies and many others have

underlined the fact that humankind is using natural resources at a faster rate than they

are being replaced. If this continues, future generations will not have the resources

they need for their development. In this sense, much of current development is

unsustainable—it can’t be continued for both practical and moral reasons. Related

issues include the need for greater attention to poverty alleviation and respect for

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 human rights. CSR is an entry point for understanding sustainable development issues

and responding to them in a firm’s business strategy.

 Globalization: With its attendant focus on cross-border trade, multinational

enterprises and global supply chains—economic globalization is increasingly raising

CSR concerns related to human resource management practices, environmental

protection, and health and safety, among other things. CSR can play a vital role in

detecting how business impacts labour conditions, local communities and economies,

and what steps can be taken to ensure business helps to maintain and build the public

good. This can be especially important for export-oriented firms in emerging

economies.

 Governance: Governments and intergovernmental bodies, such as the UN, the

Organisation for Economic Co-operation and Development (OECD) and the

International Labour Organization (ILO) have developed various compacts,

declarations, guidelines, principles and other instruments that outline norms for what

they consider to be acceptable business conduct. CSR instruments often reflect

internationally-agreed goals and laws regarding human rights, the environment and

anti-corruption.

 Corporate sector impact: The sheer size and number of corporations, and their

potential to impact political, social and environmental systems relative to

governments and civil society, raise questions about influence and accountability.

Even small and medium size enterprises (SMEs), which collectively represent the

largest single employer, have a significant impact. Companies are global

ambassadors of change and values. How they behave is becoming a matter of

increasing interest and importance.

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 Communications: Advances in communications technology, such as the Internet and

mobile phones, are making it easier to track and discuss corporate activities.

Internally, this can facilitate management, reporting and change. Externally, NGOs,

the media and others can quickly assess and profile business practices they view as

either problematic or exemplary. In the CSR context, modern communications

technology offers opportunities to improve dialogue and partnerships.

 Finance: Consumers and investors are showing increasing interest in supporting

responsible business practices and are demanding more information on how

companies are addressing risks and opportunities related to social and environmental

issues. A sound CSR approach can help build share value, lower the cost of capital,

and ensure better responsiveness to markets.

 Ethics: A number of serious and high-profile breaches of corporate ethics resulting in

damage to employees, shareholders, communities or the environment—as well as

share price—have contributed to elevated public mistrust of corporations. A CSR

approach can help improve corporate governance, transparency, accountability and

ethical standards.

 Consistency and Community: Citizens in many countries are making it clear that

corporations should meet the same high standards of social and environmental care,

no matter where they operate. In the CSR context, firms can help build a sense of

community and shared approach to common problems.

 Leadership: At the same time, there is increasing awareness of the limits of

government legislative and regulatory initiatives to effectively capture all the issues

that CSR address. CSR can offer the flexibility and incentive for firms to act in

advance of regulations, or in areas where regulations seem unlikely.

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  Business Tool: Businesses are recognizing that adopting an effective approach to

CSR can reduce the risk of business disruptions, open up new opportunities, drive

innovation, enhance brand and company reputation and even improve efficiency.

Potential Benefits for Implementing CSR

1. Better anticipation and management of an ever-expanding spectrum of risk:

Effectively managing governance, legal, social, environmental, economic and other

risks in an increasingly complex market environment, with greater oversight and

stakeholder scrutiny of corporate activities, can improve the security of supply and

overall market stability. Considering the interests of parties concerned about a firm’s

impact is one way of better anticipating and managing risk.

2. Improved reputation management: Organizations that perform well with regard to

CSR can build their reputation, while those that perform poorly can damage brand and

company value when exposed. Reputation, or brand equity, is founded on values such

as trust, credibility, reliability, quality and consistency. Even for firms that do not

have direct retail exposure through brands, their reputation for addressing CSR issues

as a supply chain partner (both good and bad) can be crucial commercially.

3. Enhanced ability to recruit, develop and retain staff: This can be the direct result

of pride in the company’s products and practices, or of introducing improved human

resources practices, such as “family-friendly” policies. It can also be the indirect

result of programs and activities that improve employee morale and loyalty.

Employees are not only front-line sources of ideas for improved performance, but are

champions of a company for which they are proud to work.

4. Improved innovation, competitiveness and market positioning: CSR is as much

about seizing opportunity as avoiding risk. Drawing feedback from diverse

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 stakeholders can be a rich source of ideas for new products, processes and markets,

resulting in competitive advantages. For example, a firm may become certified to

environmental and social standards so it can become a supplier to particular retailers.

The history of good business has always been one of being alert to trends, innovation,

and responding to markets. Increasingly, mainstream advertising features the

environmental or social benefits of products (e.g., hybrid cars, unleaded petrol,

ethically produced coffee, wind turbines, etc.).

5. Enhanced operational efficiencies and cost savings: These flow in particular from

improved efficiencies identified through a systematic approach to management that

includes continuous improvement. For example, assessing the environmental and

energy aspects of an operation can reveal opportunities for turning waste streams into

revenue streams (wood chips into particle board, for example) and for system-wide

reductions in energy use, and costs.

6. Improved ability to attract and build effective and efficient supply chain

relationships: A firm is vulnerable to the weakest link in its supply chain. Like-

minded companies can form profitable long-term business relationships by improving

standards, and thereby reducing risks. Larger firms can stimulate smaller firms with

whom they do business to implement a CSR approach. For example, some large

apparel retailers require their suppliers to comply with worker codes and standards.

7. Enhanced ability to address change. A company with its “ear to the ground”

through regular stakeholder dialogue is in a better position to anticipate and respond

to regulatory, economic, social and environmental changes that may occur.

Increasingly, firms use CSR as “radar” to detect evolving trends in the market.

8 More robust “social licence” to operate in the community. Improved citizen and

stakeholder understanding of the firm and its objectives and activities translate into

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 improved stakeholder relations. This, in turn, may evolve into more robust and

enduring public, private and civil society alliances (all of which relate closely to CSR

reputation, discussed above). CSR can help build “social capital.”

9 Access to capital. Financial institutions are increasingly incorporating social and

environmental criteria into their assessment of projects. When making decisions about

where to place their money, investors are looking for indicators of effective CSR

management. A business plan incorporating a good CSR approach is often seen as a

proxy for good management.

10 Improved relations with regulators. In a number of jurisdictions, governments

have expedited approval processes for firms that have undertaken social and

environmental activities beyond those required by regulation. In some countries,

governments use (or are considering using) CSR indicators in deciding on

procurement or export assistance contracts. This is being done because governments

recognize that without an increase in business sector engagement, government

sustainability goals cannot be reached.

5. A catalyst for responsible consumption. Changing unsustainable patterns of

consumption is widely seen as an important driver to achieving sustainable

development. Companies have a key role to play in facilitating sustainable

consumption patterns and lifestyles through the goods and services they provide and

the way they provide them. “Responsible consumerism” is not exclusively about

changing consumer preferences. It is also about what goods are supplied in the

marketplace, their relationship to consumer rights and sustainability issues, and how

regulatory authorities mediate the relationship between producers and consumers.

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 CHAPTER SEVEN

ETHICS AND MARKETING

This section highlights the ethical implications of marketing- the engine of most

organizations and how specific marketing activities have tended to take advantage of

customers. How through marketing communication, companies create the impression that

they are socially responsible when indeed, these companies are a menace to society. At the

end of this section, students should be able to:

 Appreciate the relevance of ethics in marketing communication

 Differentiate ethical marketing from unethical marketing using relevant ethical

theories

 Identify and explain the five marketing framework/agenda

Introduction

Johnson (1981) argues that most business decisions involve choices between two or more

goods or two undesirable options. A related challenge to ethical decision making is that

sometimes good and evil seem to be joint products. In other words, a desirable result is

accompanied by a negative one. An example of this is the pollution and exhaustion of

resources often accompanies high standards of living and technology.

Within business firm, the functional area most closely related to ethical abuse is marketing.

This is because marketing is the function of business charged with communicating and

openly satisfying customers. Thus, marketing is closest to the public view and, consequently,

is subject to considerable societal analysis and scrutiny.

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The trouble with marketing communications ‘‘the public increasingly wants to know about

that stand behind the brands and products presented to them. And use their power to reward

‘good’ companies and punish the ‘bad’ ones’’ (Lewis, 2001). The two ‘C’s of marketing

communications: Contact and Convince border on ethics. The first part may be a great deal

simpler than the second, and this is where the importance of source credibility becomes

paramount, considering customer cynicism. It can be argued that any and every marketing

communications tool is capable of conveying a company’s corporate image and brand equity.

However, some communications vehicles can be more powerful and effective than others,

such as public relations, advertising and sponsorship (invariably dressed up as cause-related

marketing).

In a major cover story, Sales & Marketing Management (S&MM) provided the results of a

survey of 200 sales managers designed to find out just how far professional salespeople will

go to make a sale (Marchetti, 1997). Among the findings:

 49 Percent of surveyed managers say their reps have lied on a sales call.

 34 Percent say they have heard reps make unrealistic promises on a sales call.

 22 Percent say their reps have sold products their customers did not need.

 30 Percent say customers have demanded a kickback for buying their product or

service.

 54 Percent say the drive to meet sales goals does a disservice to customers.

Ethical Theories and Marketing

This section discusses theories such as justice, deontology, and utilitarian theories. Most

importantly, these theories address ethics from the standpoint of marketing.

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Justice Theory

Much of the most influential and fundamental concepts of justice theory comes from the

writing of Aristotle. For marketers, the most important philosophy to aid in the distribution of

value is the concept of procedural justice. As the name applies, its purpose is to develop rules

or procedures that result in fair or just outcomes. Procedural justice for marketers can be

applied in their dealings with customers, employees and suppliers. A clear understanding of

the procedures, rules, and responsibilities governing these relationships by all parties is

absolutely essential to achieve procedural justice.

When for some legitimate reason this information is not part of the relationship, ideals of

justice dictate that the more knowledgeable parties not take advantage of their position.

Justice provided by marketers to their publics is the relationships, and relationships based on

trust seem to work better.

Deontology

This theory suggests that individuals have a duty to satisfy the legitimate claims or needs of

others. These claims are determined by applying logic to an ethical rule, and the duties to

others are many and diverse under this philosophy it is our duty to pay our debts, care for our

children, and tell the truth because it is the “right” thing to do. According to the theory of

categorical imperative proposed by Kant “I ought never to act except in such a way that I can

also will that my maxim should become a universal law.” With this rule and the use of logic

any action can be evaluated to determine if it is ethical or unethical. These duties on the part

of one individual toward another create rights for the other. Thus, the duty of parents creates

rights for children, and the duty of debtors creates rights for the lender. For marketers,

deontology is recognition that all of the public’s with whom they deal have certain rights and

that they have respective duties. President John F. Kennedy provided a list of four basic

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rights for consumers, the right (a) to safety, (b) to be informed, (c) to choose, and (d) to be

heard, apply directly to retailers. Concomitant duties of the marketer would be (a) to protect,

(b) to fully inform, (c) to provide and allow choice, and (d) to listen.

Utilitarianism

Is the teleological theory which states that individual should act so as to produce the greatest

possible ratio of good to evil for all of society. It forces the actors to consider all of the

outcomes of their action or inaction and to weigh one against another to determine that which

is best for society. Since one action is compared to another, utilitarianism promotes

efficiency. That is, a less efficient action is likely to produce less utility than a more efficient

action, and is therefore less ethical. Much of the justification for capitalism is based in

utilitarianism. In addition, the general public learns about the ideas of utilitarianism through

the concept of the democratic process which focuses on the majority rule. An important key

for applying utilitarianism to marketing is that the concept of “social good” includes

“economic good” but is not limited to it. The primary function of a marketing operation is

economic, but society expects that this function be carried out in a society responsible

manner.

The trouble with advertising, as the most visible communications tool, is continuously

blamed for a number of problems, including child obesity (see Kitchen et al., 2004), for being

pervasive, intrusive and pernicious (Laczniak & Laczniak, 1985). Nairn and Fine (2008)

agree that the presence of persuasion knowledge or cognitive defence can offer a plausible

test of fairness for informative advertising formats. However, they state that research findings

of neuroscientists and psychologists indicate that advertising techniques that employ

evaluative conditioning formats manipulate consumer behaviour by means of implicit attitude

change. Nairn and Fine (2008, p. 460) argue that: ‘‘… for these formats the appropriate test

of fairness is the ability to resist implicit persuasion. Without this, the child is like the target

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of subliminal advertising: preferences are mediated by non-conscious, non-rational means

that are impossible to resist’’. The concern is not merely with children, however. Nairn and

Fine write that even adolescents may have difficulty to resist implicit persuasion, due to lack

of possession of sufficient cognitive control capacities. It can be argued that children tend to

pay more attention to and be concerned with ethical and environmental issues compared with

their parents.

Heavy press advertising in the UK by major oil companies such as BP and Shell, usually

covering an entire page or even two pages at times (see Shell’s advert in The Guardian

newspaper, 1st December, 2008) boasting about their ‘green’ initiatives is one example of

such a persuasive approach. These companies’ main products are pollutants, and any

investment in alternative energy tends to be a minute percentage of overall company

investment in the production of petroleum. In a similar manner, BP has been re-branding

itself. It uses lower case letters ‘bp’ to denote a more friendly face, and uses the letters to

highlight its move to ‘beyond petroleum’. It, too, advertises heavily in the UK press for

reasons similar to Shell. Greenpeace’s media head refers to the growing amount of ‘cynical

advertising’ by organisations with poor environmental track records, such as oil companies.

Claims made by advertisers about their green attempts do not negate the overall impact of

their operations and/or products on the environment. Shell’s adverts in The Guardian

suggested that it had come to save the world (Monbiot, 2009), ‘‘tackling climate change and

providing fuel for a growing population seems like an impossible problem, but at Shell we try

to think creatively’’. The same company boasted in the year 2000 that it would be investing

US $1 billion in renewable energy between 2001 and 2005. However, no figures for its

renewable budget have been produced. The company states that it is investing ‘significantly’

in wind energy, but not clarifying what ‘significantly’ means. Car manufacturers, too, have

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jumped on the green/ethical bandwagon, and use advertising in newspapers for this purpose.

Fiat combined lower cost and ecology to advertise its cars (see The Guardian newspaper 29th

February 2008), while Toyota was actually criticised by the Advertising Standards Authority

(ASA) for making misleading claims about the environmental credentials of its Prius hybrid

car (Guardian, 18th June, 2007).

Volkswagen was also under the spotlight for an advertisement in which its Golf GT TSI was

claimed to have lower CO2 emissions than ‘other engines with similar power outputs’.

Scottish and Southern Energy Group in the UK made an unsubstantiated claim that it planted

trees in order to balance out the CO2 emissions of its customers’ gas heating and household

waste products. It was duly criticised by the ASA in 2007, following a complaint.

EasyJet’s claims to have more environmentally friendly airplanes were inaccurately portrayed

as such according to ASA, again following a customer complaint. Indeed there could be

advertisements that appear to make similar claims but which may escape the watchful eyes of

critics. Amongst the major criticisms of advertising is that, without such expenditure, the

product would cost the consumer less money. However, companies such as Kellogg’s that

spend an approximate £50 million per annum on advertising see it as an investment. The

results of such investment are reflected in their market share (Lawrence, 2008). An

investigative UK magazine called which? Had carried out research that analysed 275 major

breakfast cereals in 2006. The outcome was that 75% contained high levels of salt, based on

the guidelines of Food Standards Agency (FSA). Furthermore, approximately 90% of those

targeted at children were high in sugar, 13% high in salt and 10% high in saturated fat

(Lawrence, 2008). When a UK communications watchdog, Ofcom, proposed to restrict TV

advertising to children of unhealthy foods, Kellogg’s campaigned vigorously to stop such

limitations.

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According to Lawrence (2008, p. 22) the managing director of the aforementioned company,

when asked to reduce sugar and salt content of cereals even further (following a 25%

reduction in salt by the firm), had replied: ‘‘… and the risk is, if you take the salt out you

might be better off eating the cardboard carton for taste’’. With reference to breakfast cereals,

they are invariably advertised as ‘healthy eating’. However, according to Lawrence (2008),

one of the highest costs is not the value of ingredients, nor the cost of production, but the

marketing, with a typical 20–25% of the sales value. Needless to say, a large percentage of

that expenditure is allocated to advertising with children as the target audience. Shimp (1997)

cites the following negative effects of advertising on society: It is untruthful, deceptive,

manipulative, and offensive and in bad taste.

 It creates and perpetuates stereotypes.

 It encourages purchase of items not really needed.

 It plays upon individuals’ fears and insecurities.

Fan (2005), while remarking on advertising as the most visible element of marketing,

suggests that it is branding that is at the heart of any marketing communications, citing

Benetton’s controversial 1990s advertising campaigns. Schroeder and Borgerson (2005, p.

578) write that ‘‘it is no longer satisfactory to associate advertising solely with persuasion,

rather advertising must be seen as a representative system, with pedagogical as well as

strategic functions’’.

Research carried out by Bowd et al. (2006) amongst stakeholders and managers of a major

northeast England retail centre relating to CSR communications found that both groups

shared a similar view of CSR. Furthermore, the most successful methods of communicating

CSR to a wider spectrum of stakeholders tended to be on-site marketing communications

techniques highly visible to users. Amongst these were the large-screen TV in the shopping

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centre, centre brochures, signs within it as well as the actual ‘experience’, i.e., experience

from the interaction of stakeholders with the retail mall. From a theoretical point of view, this

emphasises the importance and relevance of the concept of customer involvement. The above

study also found that ‘‘…only a limited range of CSR activities were known to the

stakeholders as a whole and via a limited number of communication methods. This level of

awareness and the success of communications methods appear to be linked to what is

communicated and evident to centre users’’ (Bowd et al., 2006, p. 152). A unique means of

communicating company CSR has been in the form of social responsibility disclosure

utilising marketing communications tools such as advertising and/or the Internet, and so

forth.

Source credibility and source attractiveness

Recent press advertising by BP and Shell in the UK explaining carbon footprints and so forth

could not be taken seriously coming from companies whose products pollute the atmosphere

and which minimally invest in renewable energy. In a recent interview carried out by The

Guardian newspaper of the UK, Shell’s chief executive was asked: ‘‘is there any investment

you would make on ethical grounds?’’ (Monbiot, 2009). The chief executive was unable to

provide an example. The critics of advertising see, for instance, the creation of ‘hyper-reality’

by the media, where imagery replaces reality in the society, i.e. the gap between image and

reality becomes indistinguishable.

Mellahi and Wood (2003) state that marketing managers have collectively gained the power

to shape the choices and lifestyles of large numbers of consumers. Such power could also be

used to alter existing ethical norms and/or manipulate them in the company’s interest. As for

public relations, it is invariably viewed with suspicion in the oft-ridiculed guise of ‘spin

doctoring’.

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Ewen (2003) said that the history of public relations (PR) is one of a battle for what reality is

and how people will see and understand it. Public relations can be employed as a major

marketing communications tool to convey an organisation’s CSR policies to its stakeholders.

However, if one is to cite Grunig and White’s (1984) four models of public relations, perhaps

the ‘two-way symmetric’ approach would be an ideal choice. The more recent addition, i.e.

online communications in the form of websites and emails, has not been treated with any

more respect. Regarding CSR communications the examples of British American Tobacco

(BAT) and its social responsibility website or the British arms manufacturer BAE systems’

similarly titled web offerings further fuel suspicion, cynicism and derision. The World Health

Organisation (WHO) states that smoking causes more death and disability than any single

disease. Sadly, profit hungry companies are still permitted an unfettered trade, as well as

investing in branding designed to attract new customers as old ones die off (The Guardian

newspaper, 2008). The defence used by the tobacco companies refers to the advertising ban

that came into effect in the UK in 2003. Alternative means of covert ‘advertising’ have been

found by these firms. The flash of gold that transforms Marlboro Lights into a handbag

accessory is advertising in all but name, according to The Guardian (2008).

In the past, without making text-based claims about their products, visual imagery had been

used, such as the lone cowboy roaming the American West (Schroeder & Borgerson, 2005).

Pollach (2005), in her research on World Wide Web (WWW) and corporate self-presentation,

recommends that companies use a number of persuasive appeals, such as third-party evidence

or humanisation of their web-based messages, in order to enhance credibility.

Unfortunately, firms have a habit of making gross overstatements when describing

themselves. Audience involvement can also be employed to remedy this problem. However,

at times, attitude change and image formation might be required to help improve the

situation. The former is required at times when an existing organisation attempts to alter

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adverse perception of it and thus create loyalty amongst customers. The latter can benefit a

newcomer in the marketplace in the absence of any stakeholder perception.

A more credible source might be an organisation that is well known for its CSR reputation.

The UK Co-operative organisation’s press advertising (Guardian Magazine, 20 September,

2008, p. 80) reads in large lettering: ‘‘our green policies are so effective (that) other retailers

are recycling them’’. It says that it would be even more proud if more of its

ethical/environmental practices were ‘recycled’ by its competitors. That particular

organisation has been voted Britain’s greenest high-street retailer. This is related to its CSR

activities, amongst which is an investment of £1 million to supply free solar panels to UK

schools. A January 2008 press advertisement by the respectable Marks and Spencer (M&S)

company asked readers to take their unwanted M&S clothes to their local Oxfam, and receive

a £5 M&S voucher to use next time they spend £35 or more at a M&S store. What were the

motives behind M&S’s advert in this case?

To highlight their CSR credentials by encouraging recycling and helping Oxfam or to create

‘traffic’ in their stores by offering the £5 voucher? Why was there a minimum £35 clause

attached to this CSR effort? Banks and financial institutions do not usually come across as

heroes of morality or CSR. Social responsibility disclosure by six Irish banks and four

international institutions incorporating websites were examined by Douglas et al. (2004). The

findings suggested that the Irish financial institutions seemed to be lagging behind

international counterpart’s social responsibility disclosure. They seemed to focus mainly on

corporate governance and human resources, with no environmental policy disclosures.

Media choice

The choice of media for CSR information disclosure is dependent on the target audience.

Zeghal and Ahmed (1990) also add that the lower cost of producing and distributing

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brochures allows organisations to treat in greater depth themes of special interest. Branco and

Rodrigues (2006, p. 235) suggest that ‘‘such reasoning can also be used when analysing

social responsibility disclosure through the internet…it is natural for companies to give

prominence to community involvement and products/consumers information’’.

Pollach (2005) asserts that the WWW and corporate websites are superior to the conventional

mass media in a variety of ways. She cites the WWW’s capacity to transmit an unlimited

amount of information to all potential target audiences, making a reference to Sharp (2001).

Furthermore, Pollach views the WWW as a ‘pull’ medium, indicating that audiences tend to

have more control over what they wish to view compared with the traditional media. As

active information seekers, such audiences process the information available more effectively

than that accessed/offered via traditional media. In addition, messages conveyed to audiences

by organisations are not filtered by gatekeepers, but controlled by the firms themselves

(White & Raman, 1999). Ultimately the WWW provides organisations with the ability to

learn more about their stakeholders by offering interaction and encouraging dialogue. Added

to the usability of the WWW, Pollach (2005) includes credibility and value of the content as

further benefits. However, what Pollach fails to highlight is that, within the choppy oceans of

company websites, locating a beacon of trust, reliability and credibility becomes increasingly

difficult.

In the absence of media gatekeepers or watchdogs, people become more concerned with the

quality and reliability of web-based information, especially when attempting to put across an

ethically glossy corporate image. One method to overcome this mistrust is the provision of

hyperlinks by companies to trusted organisations such as NGOs, academic institutions and/or

government departments (Stewart, 2003). The reference to the M&S advert earlier

encouraging customers to donate used clothing to Oxfam is perhaps an example of such a

tactic. Other marketing communications tools are not immune to criticism. In the light of the

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above, the task of the marketing communications manager is not easy and becomes even

more difficult when conveying CSR messages. For any communication to be successful,

source reliability and credibility are essential requirements. Therefore, the nature of the

industry and the company’s perceived image and reputation can play crucial roles in the

transmission of such messages.

Furthermore, the company must also walk the talk, i.e. put words into action. Mere rhetoric

will not fool stakeholders. Overall, an integrated, co-ordinated and holistic approach is

required to ensure CSR communications can be effective. Basu and Palazzo’s (2008, p. 125)

CSR dimensions of the sense making process have the following constituent parts:

 Cognitive: What firms think

 Identity orientation and legitimacy Linguistics: What firms say

 Justification and transparency Conative: How firms tend to behave

 Posture, consistency and commitment for CSR communications to succeed, paying

due attention to all those main dimensions would be a requirement. A further

explanation of the second component, i.e. linguistics, might be useful here. As far as

justification is concerned, this is the manner in which firms justify their actions to

others or as Ferraro et al. (2005, p. 16) write: ‘‘how we talk about behaviour

influences that behaviour’’. Transparency, on the other hand, can either be in a

balanced manner, where scientific and documented evidence is offered, or in a biased

fashion, where only positive results are made available. Balmer (2006), in his six ‘C’s

of corporate marketing, reiterates the importance of integration and co-ordination of

all those mix elements. The absence of or limited attention to one or more could

jeopardise the task of corporate marketing. Below is an explanation of the six ‘C’s:

Character, also known as corporate identity – ‘‘what we indubitably are’’ Culture,

also known as organisational identity – ‘‘what we feel we are’’ Communication, also

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 known as corporate communication – ‘‘what we say we are’’ Conceptualisations, also

known as corporate reputation – ‘‘what we are seen to be’’ Constituencies, also

known as marketing and stakeholder management – ‘‘whom we seek to serve’’

Covenant, also known as corporate brand management – ‘‘what is promised and

expected’’ For the purpose of marketing communications and CSR, missing from the

above model are the words consistency, integration and commitment. Messages

conveyed by the firm, whether aimed at internal customers or other stakeholders,

should be consistent, and whatever media are employed, the integration of marketing

communications must be taken seriously. Senior-management commitment to CSR

strategies and their implementation as well as effective communication would also be

crucial to the success of such endeavours. Senior management must view expenditure

on CSR and its communication as an investment and not a mere cost.

Specific Theoretical Analysis of Marketing Issues

This section views ethics in marketing from five main perspectives and addresses these issues

from theoretical angles. Understanding this section will help businesses and managers to plan

and implement morally justified relationship marketing operations. The agenda consists of

five parts:

(1) The ethics of keeping promises

(2) The ethics of truth-telling

(3) The ethics of equal treatment of customers.

(4) The ethics of commitment

(5) The ethics of communication.

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The Ethics of Keeping Promises

Deontological ethics provides an appropriate perspective from which we may address and

elaborate the principle of keeping promises. The Kantian perspective suggests this duty as the

basic moral principle which should guide our behaviour. On the practical level, for example,

contract law is promise based. As the “promise principle” provides the moral basis for

contract law, it can be called the legalistic stance. Individuals’ mutual agreements and

contracts are usually based on the promise-keeping principle.

It follows that people may voluntarily impose obligations on themselves in order to join

together for mutual advantage. This also includes co-operation: persons may work and act

together and fulfill their own and the other party’s goals and needs. While this kind of co-

operative relationship calls for trust, keeping promises is the means of generating trust. From

the utilitarian perspective it is not obligatory to keep promises if the outcome of an action

including promise violation will be better to most of the people than the outcome of an action

where promises are kept. Utilitarianism does not value people’s will to keep promises

whereas deontology regards this duty as indisputable. The promise principle rejects the

classical utilitarian model of contract as not reflecting contemporary law or legal values.

Business organizations following the promise principle would be morally obliged to keep

their promises regardless of whether or not they are legally binding (Gundlach and Murphy,

1993).

Responsibility implies an obligation which is the manifestation of individual ethical duties. It

is the link between the manager, his/her position, and the organization. Managers usually

have several private and professional duties. The manager following relationship marketing

philosophy has duties typical for his profession, and thus the ethics of duty must be put

forward. Kantian ethics stresses action motivated by the moral will: an act is morally right if

it happens by aiming to do right things. The relationship marketer in an organization for

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instance, may face many controversial duties which are proper and favourable in certain

situations. However, he/she has to seek a balance between the interests of various

stakeholders with different requirements. Thus priorities must be defined and, for example,

the strict Kantian position does not offer a clear solution. There is, however, an alternative

possibility for solving the problem. The answer may be the prima-facie duties suggested by

Ross (1930). The most important duty is the duty of non-malfeasance. Thus the manager

must be able to ignore all his professional duties (i.e. duties created by his job) if the duty of

non- malfeasance exists in a situation.

The Ethics of Truth-Telling

Truth telling is an issue often connected with the problems of keeping promises. As a general

maxim it is often stated that you must always tell the truth, nothing but the truth, nothing to

hide, nothing to add. This may be the ideal, but the practices of everyday life are more

complicated and demand more fluid solutions. Let us take a glance at what the different

positions of ethical theories are saying about this issue. If one takes a deontological stance,

one can say that you must tell the truth because “the moral will” demands it, despite the

consequences caused by the act under consideration.

A utilitarian may say that you must tell the truth only if the outcomes of truth-telling would

cause more happiness or utility to the greatest number of people, compared with not telling

the truth. But you cannot always know all the consequences of your actions. So it is difficult

to modify truth-telling rules (rule-utilitarianism) which would guide you to the best possible

outcomes, which maximize the utility for the majority. Could lying be a virtuous activity?

Virtue ethics offers us a model of virtues which we must obey in order to be moral. An

imaginary test: can we imagine a community of thieves in which lying is seen as a virtue? All

members of the community will lie to each other as much as possible. Further, we must ask if

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the societal life is then possible at all. The answer is that lying destroys the basis of

communal life, because no one can trust another person’s promises or liabilities. Lying

cannot be a virtue, but merely a vice.

The considerations mentioned above are quite abstract and the managers operate in the real

world in which all is not black and white. Usually he/she operates in the “grey” zone in which

moral and immoral activities lie near to each other. The manager must decide and act

casuistically; this means that the situation usually rules when he/she must to tell the truth. The

manager is not always able to tell the truth, but as the basic premise he/she is demanded, by

the moral theories, to act mostly honestly and tell the truth. Another interesting issue is the

telling of white lies. A manager may be forced to tell “white lies” for many reasons. He/she

could see the situation as one where his/her business is a source of pressure: “Other people

(in different organizations) tell lies, if I do not, I will miss my business opportunities, so I am

forced to lie”. Is this excuse good enough? In any case, we can try to give the manager some

advice and try to improve his/her decision situation. For example, we can draw on the

Rossian prima-facie duties mentioned earlier; thus one must draw up a schedule of duties to

obey with the order of preferences. A conditional maxim could be that one must never lie if

one can see the direct harm caused by this lying as being so severe that someone could die or

be badly injured as a result.

The Ethics of Equal Treatment of Customers

In the operations of business organizations, the equal treatment of the partner(s) is an

essential feature of action principles. The notion of fairness is widely recognized as essential

for mutually satisfying exchange. Fairness is also tied to the concept of distributive justice.

Furthermore, Kantian ethics stresses equal treatment of all human beings. Kant’s (1959) point

is implicitly recognized by managers and by the whole business community as corporate

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officials despair of immoral practices of corporations and denounce executives engaging in

shady practices as undermining the business organization’s itself.

Kant captures this conviction in what he calls the categorical imperative: “One ought never to

act unless one is willing to have the maxim on which one acts to become a universal law”.

Cheating, kickbacks, and bribes cannot be made universal laws. In reality, there are several

societies and business environments where bribery is the necessary practice for successful

and profitable firms. In spite of this, we cannot propose bribery as a general moral maxim.

According to Kant, such actions are universally and necessarily immoral, quite independent

of the desires and culture of the actor. In other words, the principle of equity arises: “treat

other people like you wish to be treated yourself”. Treat all your clients in the same manner

by honouring their wants and needs (Kant, 1959).

The Ethics of Commitment

In business transactions, participants must be committed. Commitment can be defined as an

affective attachment to an organization, the intensity of which can vary with the nature of the

relationship. Thus commitment is conceived of as the strength of an individual’s

identification with, and his/her involvement in, the organization. It is characterized by three

factors. First, stability refers to a strong belief in and acceptance of the organization’s goals

and values. Second, sacrifice means a willingness to exert considerable effort for the benefit

of the organization. Third, loyalty means a definite desire to maintain organizational

membership (Modway et al., 1979).

Stability is needed to balance the conflicting interests of different stakeholders. Without

stability business transactions are not possible. Stability presupposes trust, and only mutual

trust can be the cornerstone of successful business organization’s activities. Sacrifice means a

way to sacrifice one’s situational benefit for the sake of the business partner. Through this,

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commitment to business springs up and good conditions are created for long-term

relationship. Loyalty is necessary for running successful operations. Loyalty means getting

customers to commit themselves to the rewarding long-term business transactions (Modway

et al., 1979). The ethical question handles the means by which commitment is attained. Some

instruments used by managers, for example strong persuasive elements, persuasive rhetoric or

some psychological tricks, are obviously immoral. To avoid such practices, the golden rule

“do unto others, as you would have others do unto you” is a good guide.

Ethics of Communication

The German social philosopher Habermas (1993) has put forth a theory of communicative

action. It is called “The theory of distorted communication” and includes some strong

contractual elements. Communication is a central element in business organizations. It offers

a theory of equal negotiating partners and an opportunity for domination-free communication.

The theory displays a rational way to proceed in communication practices; it assumes that it

is possible for the parties to achieve an agreement by using effective negotiating mechanisms

(Habermas, 1993). The basic idea is that every individual has the right to domination-free

action. An application to marketing (the buyer-seller relationship should be evaluated and

reconstructed) on the base of ethics of mutual communication.

Conclusion

In short, marketing communications can be employed for ethical and corporate social

responsibility purposes. It acknowledged the negative perception that consumers and many

businesses have of marketing in general and marketing communications tools in particular.

The proliferation of ethical and green claims by companies, some of which appear in the so-

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called ‘sin industries’ category, has contributed to growing consumer scepticism of such CSR

communications and green-washing.

In Ghana, the mining sector is applauded for its significant contribution to the growth of the

Ghanaian economy and therefore, these companies are celebrated. However, the very

activities of these companies are a nuisance and a threat to human society through

environmental degradation, damage to water bodies etc.

In addition, the UK-based Co-operative organisation, of which the Co-operative Bank is a

part, has been used as a glowing example of a financial institution that offers the customer an

ethical choice. Its communications with the stakeholders could be suggested perhaps as more

of a ‘marriage of convenience’, as far as marketing communications and CSR are concerned.

Its press advertising was used in this paper to emphasise the usability of marketing

communications in terms of message conveyance of the organisational CSR. However,

source credibility and reliability were also cited as major requirements for CSR message

acceptance and communications effectiveness. Examples used from the so-called ‘sin

industries’, such as tobacco manufacturers, oil companies and car producers, desperately

attempt to convey an ethically acceptable and even attractive corporate image.

There is still a great deal of public scepticism and suspicion in relation to CSR per se. For

instance, Frankental, of Amnesty International, views CSR as a PR invention. The Corporate

Watch 2006 Report makes similar comments. The latter states that ‘‘like the iceberg, most

CSR activity is invisible…It is often an active attempt to increase corporate dominations

rather than simply a defensive ‘image management’ operation’’. However, the examples of

the purchase of the Body Shop, Ben & Jerry’s and Green and Black’s by multi-national

companies is an indication of growing customer interest in ethical products and firms.

Communications will be essential to their survival, as well as maintaining ethical image (and

reputation) or safeguarding their competitive advantage through CSR.

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Advertising, PR and sponsorship (cause related marketing) have the potential to make major

contributions to publicising and highlighting a transparent, consistent and socially responsible

corporate image. Senior-management commitment and dedication to CSR in a holistic

manner is absolutely crucial. ‘Shotgun weddings’ may lead to acrimonious divorces and

expenses.

Since the 1950s, CSR (e.g., Bowen 1953) along with

the related CHAPTER

CHAPTER EIGHT
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 HR AND ETHICS

As HR decisions largely affect human beings, subjecting them to ethical analysis has

increasingly attracted attention. People are interested in knowing whether employee’s

employment contract was terminated fairly; whether performance was fairly assessed etc. In

this chapter, students will be taken through critical HR issues and therefore, would be

expected after the chapter to be able to:

 Analyze HR decisions from the point of view of justice/fairness, rights and duties, and

utilitarian perspective

Introduction

A job is much more than an assigned task in an organization or a source of income. It is also

for many people a part of their self-identity, a source of social connections, a source of

important financial benefits such as health insurance and retirement income, and more.

Managerial actions that terminate an individual’s employment have major repercussions for

that individual. Specifically, some of the responsibilities of managers are to choose new

employees from a pool of applicants, assess performance as well as terminate the contract of

engagement between the employer and employee. With respect to job placement, if there is

one open position and there are several applicants, then a valuable resource (the job) will be

awarded to one applicant and denied to others. Anyone who has anxiously awaited the results

of their application and interview for a job knows that what happens here matters. There are

consequences that make the successful applicant happy and satisfied and the unsuccessful

applicants unhappy and dissatisfied. As long as the manager makes the choice, he is making a

decision, in the role of manager that has ethical implications both for the new employee and

for the rejected candidates.

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The hiring process

Let us assume that only one open position exists and that its scope is already determined. Let

us also assume that minimum qualifications for the job have been established and have been

made known to the applicants. Let us further assume that the open position has been

advertised or posted in some manner and that a number of individuals have applied for the

position. Finally, let us assume that more than one applicant meets the minimum

qualifications for the job. There are obviously cases where one or more of these assumptions

will not hold true, but the assumptions as stated will let us make an initial examination of the

issues without too many complicating factors.

To start with, the primary reason why a manager has his/her job is not to be fair, but to

contribute through her section or department or division to the success of the company. So,

when a manager is in the position of selecting a new employee from a pool of qualified

candidates, the primary goal of the decision is to contribute to the success of the company.

The hiring decision has two broad implications for the unit’s and the company’s success: (a)

the person chosen should be the one most likely to perform well in the job for which he is

being hired and (b) the pattern of hiring decisions, in the unit and in the company at large,

should be such as to contribute most to the company’s success.

Once the most qualified candidates have been identified, the hiring manager must still make a

decision. From the conversation with hiring managers, such decisions are often made based

on what is called “chemistry”. This seems to mean personal intuition, in practice. In other

words, there are no objective, measurable job-related criteria on which the candidates differ,

yet something tells the hiring manager to offer the job to one candidate rather than to another.

Suppose that he prefers working with women and one of the qualified applicants is a woman.

Is it morally acceptable for him to hire her on this basis? If his department or unit has very

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few female employees, or for that matter, very few male employees, there may be

considerations of equal opportunity that could legally impact his decision.

Problems arise if a series of hiring decisions is based on these personal criteria. Suppose that

manager who prefers working with attractive women has, over a period of time, seven

different hiring decisions to make as natural turnover occur. On each occasion, there are

several qualified candidates and one of these in each case is an attractive woman. Eventually,

this manager will be presiding over a work unit made up entirely of attractive women. There

now appears to be a pattern of discrimination against male and less attractive women.

Analysing Hiring Decisions

Utilitarian view

Utilitarianism says that the moral act is the one that creates the greatest good for the greatest

number of people. Using this approach, the manager who is trying to decide which hiring

choice is most ethical will examine the impacts of that hiring choice. Obviously, the

candidate who is hired will experience happiness and feel that he/she has been the recipient

of good. If the manager feels that he has made the best choice, he also will experience

happiness. There is no way to know for sure that any candidate will work out in practice, but

if the manager is able to hire a candidate who meets the minimum qualifications for the job

and appears to be the best candidate in the pool, there is at least a reasonable chance for

success. The manager may also feel a certain degree of happiness because the search is over,

the position is filled and he can get on with other things. Managers are partly evaluated on

their ability to choose new employees, since this is a key part of their jobs. If the new

employee succeeds, the hiring manager also gains by reason of having made a good hire.

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The candidates who are not hired are also impacted by the decision. Even though they will

probably feel unhappiness at failing to get an offer of the job, they may or may not find

another job that suits them as well or better. It is good for the hiring manager to remember,

though, that those rejected for the position will feel rejected. To the extent that they

understand the hiring process, if they perceive that it was fair, their unhappiness at not getting

the job may be somewhat reduced. The other employees in the unit, who will work with the

new hire, will gain happiness if the choice was a good one and the new employee proves to

be successful. They will suffer unhappiness to the extent that this is not the case.

Thus, the utilitarian approach requires the hiring manager to think about the consequences

that may extend for months or years after the decision is made, especially when the position

being filled is at a relatively high level.

Rights and Duties Analysis

At the individual’s disposal are four rights: human rights, legal rights, position rights and

contract rights. In considering the rights and duties approach to employment situation, focus

will be on legal and position rights. To start with, there is no human right to a job. If there

were, someone or some organization would have a corresponding duty to provide a job to

each person. Position rights are rights that an individual holds by reason of their position,

such as police officer or chief financial officer. The position of the applicant does not entitle

an individual to a job, although it does entitle an individual to be treated fairly in the selection

process, and it establishes that employers have a corresponding duty to treat all applicants

fairly. Finally, an individual can have a contractual right to keep a job once it is attained, but

he/she does not have a contractual right to obtain a job. Similarly, individuals do not have a

legal right to be placed in a given job, but in the United States and some other countries, they

do have a legal right to be treated fairly as applicants in the employment process. The right of

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the applicant to be treated fairly corresponds to a duty of the hiring manager to treat all

applicants fairly. There is also a duty of the human resources department, where one exists, to

see that hiring procedures provide for fair treatment of all applicants and that these

procedures are, in fact, followed by hiring managers. Thus, one obtains the rights of an

applicant simply by applying for a job. Fair treatment for qualified applicants is different

from fair treatment for unqualified applicants.

Fairness and Justice Analysis

Under this perspective, we defined the moral act as the one that treats similarly situated

people in a similar manner, with regard to both process and outcome. When applied to

employment decision, this is obviously a perspective that has relevance. This perspective

posits that similar treatment is not the same as exactly equal treatment. Accordingly, the

fairness and justice view stipulates that similar treatment is owed to similarly situated people,

but not to everyone regardless of their situation.

Broadly speaking, since the main reason for hiring a person into a vacancy is the expectation

that the person hired will be the best contributor to the success of the work unit by

performing well, it is reasonable to determine what minimum set of knowledge and skills the

person hired should bring to the position. People who lack the minimum knowledge and

skills to perform the job successfully are not similarly situated compared to those who have

the skills. It is fair and just to make this distinction and to make it early in the hiring process.

Some applicants who lack the required skill and knowledge will plead that they really can do

the job, if just given the chance. That task of the hiring manager, though, is to hire the

applicant most likely to succeed in the position. If the minimum qualifications have been

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determined reasonably, then using these as the first screen to eliminate unqualified applicants

is quite fair.

It sometimes happens that a hiring manager will review a pool of applicants and identify one

or two, saying something like this: “Gee, they don’t meet the minimum qualifications, but

they are very strong in some areas, and I know personally that they are really dependable, so

let’s include them anyway. “ A moment’s reflection will show that what this actually means

is that the minimum qualifications are really not that at all, but a sort of guideline to be

ignored based on the manager’s individual judgment of each candidate. While the setting of

minimum qualifications is probably as much art as science, if they have any meaning for

screening candidates, they must apply to all candidates. Perhaps they are set wrong and

dependability should be allowed to substitute for education or experience. If that is the case,

they should be changed and the new standards should be applied uniformly to the entire

applicant pool. Otherwise, similarly situated people will not be treated in a similar way.

In the normal case, the original pool of applicants will be separated into two groups: those

who meet the minimum qualifications for the position and those who do not. Since the two

groups are not similarly situated it is fair to treat them differently.

Promotion

Assume a job opening is to be filled by promotion instead of by outside hiring. Suppose the

open position is that of supervisor. The hiring manager surveys the employees currently

working in the section that has the open supervisory position, selects the best technician

(accountant, claims examiner, engineer) in the section and promotes him to supervisor. In this

situation, the newly promoted supervisor does not perform well as supervisor and ends up

either being demoted to his former position as a technician or leaving the company entirely.

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The section has lost a good technician, at least temporarily, and gained a poor supervisor.

What went wrong?

The job of supervisor requires different skills than the job of technician. A good technician

whether an accountant, a claims examiner or an engineer, is comfortable with details. He

knows a lot about some technical area and can apply his knowledge easily to the work at

hand. It could be said that he works best in a world the size of a computer monitor. A good

supervisor is aware of what is going on around him. He knows who is doing what throughout

his section. He is comfortable interfacing with other supervisors, with bosses and with the

people in the section. He switches easily from training a new employee to meeting with the

department’s other supervisors, to working on budget forms. He has a sense of how his

section’s work contributes to the larger efforts of the rest of the company. He is able to adapt

to changing circumstances and respond to both opportunities and deadlines.

Utilitarian Analysis

According to perspective, if the unqualified or significantly less qualified employee is

promoted, there is a reasonable chance that he will not perform adequately in the new job. If

this occurs, it will result eventually in his removal from the job, after a period of poor

performance. This period of poor performance will most probably be a difficult and unhappy

time for the employee, for those he oversees and for his boss. If he does perform well, he may

well have to overcome obstacles presented by the initial expectation of those he supervises

that he will fail because he lacks qualifications. This period of proving himself will be a time

of struggle for the new supervisor, which he may or may not enjoy. It will probably be an

anxious time for those he supervises and for the boss who promoted him and is observing the

struggle. In neither case is it likely that the promotion will result in the greatest good for the

greatest number.

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Rights and Duties Analysis

From the purview of rights and duties, an employee does not have a right to promotion

simply by being an employee. He also does not obtain such a right by performing well in his

present job. If managers had a duty to promote all employees who well, many organizations

would soon become exceedingly top-heavy. Senior managers who perform well would have

to be promoted to even more senior positions. Finally, what would we do with CEOs who

perform well? As earlier discussed, employees have a right to be treated fairly if they apply

for a promotion; just as other applicants for the position have a similar right. They do not

have a right, by their position as employee, to extra consideration (unless being an employee

is a legitimate qualification for the job) or to be awarded the job simply because of their

status as employee.

Fairness and Justice Analysis

Here, the issue turns on whether the current employee is similarly situated as an applicant

with other applicants from outside the company. Again, assuming that the company does not

have a policy of promoting only from within, and assuming that the similarly situated group

is defined as those having similar qualifications, then the inside employee should be seen as a

member of the applicant pool, or a qualified member of the applicant pool. If, for legitimate

job-related reasons, inside candidates are preferred, then the employee is not similarly

situated with outside candidates, and fairness does not require treating him in a similar

manner in terms of the selection process. This is because fairness and justice requires that

similarly situated people be treated similarly regarding both process and outcome.

There are benefits to promoting good employees in terms of company loyalty and

encouraging other present employees to work hard and strive for promotion within the

company. Nevertheless, there are disadvantages to promoting unqualified or less qualified

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individuals to positions of increasing responsibility. It is fair to all applicants if the most

qualified is offered the open position. It is unfair to offer the position to those significantly

less qualified or unqualified simply because they currently work for the company and

perform well in their present position (in the case of the unqualified applicants, they will

experience the worse form of Peter’s Principle).

Performance Appraisal and Compensation

Introduction

An organization can choose or award compensation increases based on performance, or based

on inflation, or based on position and longevity, or based on some combination of these

factors. However, these are different bases for making compensation decisions, and the

organization needs to be clear about what it is trying to do in order to manage compensation

rationally. Managers generally seem to prefer merit systems, whereby at least part of any

increase in compensation is based on performance. Some workers, particularly those in union

environments, seem to prefer some basis other than merit, so that individual managers will

have no say in which workers receive how much increase in their compensation.

Merit-based compensation decisions and performance appraisal

Compensation increase will be granted to some or all the employees reporting to a manager,

and the basis for such increases and their amounts will be the manager’s evaluation of each

employee’s performance during a specified period. There are several reasons why managers

have as part of their job the evaluation of employees who report to them. One is related to

compensation increases. Another is to identify workers who are not performing adequately

and either help them to improve their performance or remove them from their jobs. Another

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is to identify particularly promising or high-performing employees and prepare them for

promotion if they seem capable of performing in a higher position. Still another reason why

performance evaluation is part of a manager’s job is that almost everyone could do their job

at least a little better.

Lying and Truth-Telling in Performance Appraisal

What sort of uses might be made of performance appraisals? First of all, they may be used to

determine compensation increases. They may also be used to identify promising employees

in order to prepare them for higher positions. They may be used for progressive discipline

(graduated warnings leading to possible termination for poor performance). They may be

used in case of layoffs etc. In total, these uses of performance appraisals have a lot to do with

how a company manages its human resources. If all of this is based on lies, things are clearly

not as they should be, and smart managers will no longer rely on performance appraisals as a

source of valid information. For this very negative consequence to occur, it is not necessary

that all, or most, or even half of the performance appraisals contain lies. It is enough that

lying is known or suspected to occur with some frequency for smart managers to decrease or

cease their reliance on the whole performance appraisal system for information.

There is a further harmful effect from a pattern of lying on performance appraisals.

Employees will sense that lying is occurring. If they are rated higher than their performance

deserves, they are very unlikely to complain. They are more likely to make note of the fact

that their manager is either too dumb to see their real performance or too dishonest to report

it.

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Utilitarian Analysis

Once again, utilitarianism defines the moral act as the one that produces the greatest good for

the greatest number of people. Appropriate compensation increases produce considerable

happiness for many of those who receive them. Some employees will undoubtedly feel that

they deserved a greater increase than they received but, on the whole, appropriate increases

will produce employee happiness. Such increases will also tend to keep employees

reasonably motivated and loyal to their employer. This is good for the organization as a

whole.

From a utilitarian perspective, then, managers have an obligation to conduct performance

appraisals in a professional and reasonable way. In addition, they have the obligation to be

truthful on performance appraisals. This is where the pattern perspective comes in. It does not

create the greatest good for anyone if the performance appraisal system is permeated with

lies.

Rights and Duties Perspective

This perspective says that the moral act is the one that recognizes the rights of others and the

duties those rights impose on the actor. The actor here is the manager, and the rights of

employees being evaluated, as well as other users of the performance appraisal system, are at

issue. Employees, as humans, have the right to be told the truth about their work performance

by their work supervisor. This right means that managers have a duty to tell employees the

truth on their performance appraisals. Since most performance appraisals forms include a
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section called something like “areas needing improvement,” most performance appraisal

interviews will include some discussion that amounts to criticism of the current performance.

Thus, managers have a duty to tell employees all these things and to discuss not only what the

employee does well but also what the employee can do to improve his performance. That fact

that this is not an easy conversation to have does not mean that the manager is justified in

omitting it. From a pattern perspective, the manager has a duty, by his/her position, to obtain

good performance from those people that she manages, or to remove them if they cannot or

will not perform well. The only way that this can be done is one person at a time, and one

appraisal at a time. The manager who refuses to discuss or document negatives in

performance appraisals is almost certainly unable to maintain or improve performance of her

unit. However, the right of an employee is not to a certain amount of compensation increase

(in a merit system) but to be treated fairly in terms of the amount of increase.

Fairness and Justice Analysis

Under the fairness and justice perspective, the moral act is the one that treats similarly

situated people in similar ways regarding both process and outcome and with a sense of

proportionality. It does not say that everyone should be treated equally. To evaluate

employees fairly means that their performance must be judged based on similar standards if

they are similarly situated. This is not always an easy task.

Fairness requires that similarly situated employees be evaluated on similar criteria.

Accomplishing this is a challenge for those who supervise service workers, but it is part of

their job. A more difficult question still is how to reward or compensate similarly situated

employees in similar ways. Part of deciding who is similarly situated involves setting up job

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descriptions. This is typically the responsibility of the human resources department, with

input from supervisor or manager of the unit where the jobs are being evaluated.

Termination

Whether the source of a long-term employee’s deteriorating performance is known, suspected

or unknown, there remains a question of whether it is ethical to treat them differently from

anyone else in dealing with unsatisfactory job performance. If it is judged to be more

important to help and retain long-term employees than others, then the greatest good for the

greatest number might be achieved by making some extra effort to correct the situation when

a long-term employee’s performance deteriorates. Again, behaviour that results in immediate

termination is not under consideration here. If the employee can be brought back to their

previous satisfactory level of performance, the employee benefits by not losing their job, the

company benefits by retaining a good employee who is experienced and the only unhappiness

caused is to those affected during the employee’s period of unsatisfactory performance. Some

of this would be true of any employee and the aim of progressive discipline is to improve

performance and gain the benefits described here.

It is difficult to argue that an employee has a right to special treatment in a situation where

performance has deteriorated, simply because he has been employed by the same company

for a long time. If we take the system perspective, managers have a duty to see that their units

operate well and that their individual decisions support patterns of decision-making that are

favourable to the company. If it is a good thing to encourage good employees to stay with the

company by maintaining a pattern of treating long-term employees well, then individual

decisions are the only way to create and maintain this pattern.

Fairness and justice would ask first whether long-term employees are similarly situated with

other employees. If they are, the conclusion is clear: they are to be treated similarly. Although
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institutional memory is critical and long-term employees tend to possess institutional

memory, the deterioration in their performance suggests that the organization cannot rely on

them again.

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