Organisational Ethics

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A Framework for Understanding Organizational Ethics
O.C. Ferrell, Professor, Colorado State University

Organizational ethics is one of the most important, yet perhaps one of the most overlooked and misunderstood concepts in corporate America and schools of business. Organizational ethics initiatives have not been effectively implemented by many corporations, and there is still much debate concerning the usefulness of such initiatives in preventing ethical and legal misconduct. Simultaneously, business schools are attempting to teach courses and/or integrate organizational ethics into their curricula without general agreement about what should be taught, or how it should be taught. Societal norms require that businesses assume responsibility and ensure that ethical standards are properly implemented on a daily basis. Such a requirement is not without controversy. Some business leaders believe that personal moral development and character are all that are needed for effective organizational ethics. These business leaders are supported by certain business educators who believe ethics initiatives should arise inherently from corporate culture and that hiring ethical employees will limit unethical behavior within the organization. A contrary position, and the one espoused here, is that effective organizational ethics can only be achieved by proactive leadership whereby employees from diverse backgrounds are provided a common understanding of what is defined as ethical behavior through formal training, thus creating an ethical organizational climate. In addition, changes are needed in the regulatory system, in the organizational ethics initiatives of business schools, and in societal approaches to the development and implementation of organizational ethics in corporate America. According to Richard L. Schmalensee, Dean of the MIT Sloan School of Management, the question is, “How can we produce graduates who are more conscious of their potential . . . and their obligation as professionals to make a positive contribution to society?” He stated that business schools should be held partly responsible for the cadre of managers more focused on short-term games to beat the market rather than building lasting value for shareholders and society (Schmalensee 2003).

This introductory chapter provides an overview of the organizational ethical decision making process. It begins with a discussion of how ethical decisions are made and then offers a framework for understanding organizational ethics that is consistent with research, best practices, and regulatory developments.Using this framework, the chapter then discusses how ethical decisions are made in the context of an organization and poses some illustrative ethical issues that need to be addressed in organizational ethics.

Defining Organizational Ethics

Ethics has been termed the study and philosophy of human conduct, with an emphasis on the determination of right and wrong. For managers, ethics in the workplace refers to rules (standards, principles) governing the conduct of organization members. Most definitions of ethics relate rules to what is right or wrong in specific situations. For present purposes, and in simple terms, organizational ethics refers to generally accepted standards that guide behavior in business and other organizational contexts (LeClair, Ferrell, and Fraedrich 1998).1

One difference between an ordinary decision and an ethical one is that accepted rules may not apply and the decision maker must weigh values in a situation that he or she may not have faced before. Another difference is the amount of emphasis placed on a person’s values when making an ethical decision. Whether a specific behavior is judged right or wrong, ethical or unethical, is often determined by the mass media, interest groups, the legal system, and individuals’ personal morals. While these groups are not necessarily “right,” their judgments influence society’s...
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