“Doing the right thing”- The role of ethics in organizational culture

This post aims to provide information on the role of ethics in organizational culture.

The relationship of ethics and culture

Ethics is simply doing the right thing (Krishnamurthy, 2011). Ethics is the ‘code of moral principles and values that governs the behaviors of a person or group with respect to what is right or wrong’ (Mihelič et al., 2010, p. 32).

‘Business ethics comprises moral principles and standards that guide behavior in the business world’ (Victoria, 2018). An ethical or unethical conduct in an organization is the result of one’s own characteristics and the context they live in, where organizational culture is the main context the employees refer to (Meyers, 2004).

Ardichvili et al., (2004) asserts that an ethical culture not only promotes employees taking a decision with respect to corporate responsibility towards the external environment and internal values of the organizational culture but also encourages employees to go an extra mile to choose the ethical decision when all choices seems right.

Ethics is practiced in the organizational culture and applicable to every employee irrespective of their designations, roles and responsibilities (Paliwal, 2006).

 

Creating an ethical culture 

•         Build a culture of ethical employees, leaders and structures

Treviño et al., (2000) developed a framework which consisted of pillars that contribute towards building an ethical organizational culture. Figure 1 illustrates the three pillars of an ethical organizational culture which consists of Ethical Individuals, Ethical Leadership and Organization’s Structures and Systems.

 

Figure 1: Three Pillars of an Ethical Organization

Source: (Treviño et al., 2000).

•         Introduce an Ethics Program and an Ethics Officer

Greenburg (2002) suggests that an ethics program can be introduced to the organization which includes code of ethics, ethics training and ethics hotline.     An ethics officer is a person who is in charge of ensuring ethical practices are carried out in the organization and the officer will be accountable to the ethics program introduced in the organization (Grigoropoulos, 2019).

•  Build the virtues of an ethical culture

Kaptein (2008) suggests that the extent to which 8 virtues namely; (clarity, congruency of management, congruency of supervisors, feasibility, supportability, transparency, discuss ability and sanction ability) are built will depend on creating a strong ethical culture. 

•        Create a culture of integrity

Ethics officers should create a culture where the employees would speak up if there is something untoward happening in the organization that is not in align with the company procedures and conduct without being silent (Lennick and Kiel, 2005). 

Verhezen (2010) suggests that ethical behavior is not about referring a legal guide line but internalized values and principles which should be created within the organization by transforming a culture of compliance to a culture of integrity. 

•        Create a culture that promotes whistle-blowing

An organization should build a culture where the employees can reveal the unethical practices of the employer to the ethics committee or ethics officer of the organization and necessary action should be taken by the ethics committee without any partiality to the employer (Kaptein, 2011).

Ethical dilemmas and the negative impact of unethical behavior

An ethical dilemma occurs when an individual or a business is in a complex situation and a decision should be made with regard to the action that needs to be taken among many options available (Harrison, 2005).

In other words, ‘an ethical dilemma is a conflict between at least two ethical principles both of which could lead to an equally good or equally bad outcome’ (Tota and Shehu, 2012, p.557).

Every society in which a business operates expects a certain type of behavior and the organizations that disregard these societal expectations may lose reputation, loose profits and may face legal proceedings (Davidson and Griffin, 2000).

Similarly, Robbins and Judge (2013) asserts that unethical behavior can cause customer boycotts, fines, lawsuits, and government regulation of an organization’s practices.

Video 1 provides an insight to examples of ethical dilemmas, examples of famous businesses that failed due to unethical conduct, impact of ethics on different functions of the organization and how it can be improved.

 

Video 1: The impact of Business Ethics

 

Source: (The Business Mindset, 2020) 

 

According to my own experience of ethical conduct in the banking industry, our bank ensures to promote ethical behavior with consideration to all stakeholders.

In the customer perspective, it is extremely important to maintain the integrity the customers have in us as we are handling highly confidential financial information of people. From the moment we joined the bank, we were communicated the bank’s written code of conduct and ethics and the importance of doing the right thing.

Likewise, the ethics, governance and compliance committee has created a culture of whistle-blowing where the unethical conduct can be reported confidentially and will be investigated independently.

The bank promotes an ethical culture, not just towards the customers and employees but towards the environment as well. We have an Environmental and Social Management System (ESMS) which provides the policy framework, implementation and monitoring mechanism to ensure that the finances extended to the customers are used for operations that are socially and economically sustainable and does not cause any environmental damage from their outputs (HNB, 2021). Similarly, all the employees have given a ‘green pledge’ to safeguard the environment, reduce wastage and help to minimize climate change.

In addition to that, during the COVID-19 pandemic, with the debt moratoriums granted by the bank in accordance with the Central Bank regulations, our bank felt that some customers were not granted the relief due to the eligibility criteria set in the CBSL regulations. Therefore our bank set an internal fund of 5 Million to grant SMEs a working capital loan with a concessionary interest rate to ensure that they can still carry on their functions amidst the pandemic. 

When considering the repercussions of unethical conduct on a business, it is crucial for businesses to focus on maintaining ethical practices not just because of compliance but because it is the right thing to do (McMurrian and Matulich, 2006).

  

 

References

 

Ardichvili, A., Mitchell, J. and Jondle, D. (2009). Characteristics of Ethical Business Cultures. Journal of Business Ethics. 85(4). pp. 445-451. doi:10.1007/s10551-008-9782-4.

Brinkmann, J. (2004). Looking at consumer behavior in a moral perspective. Journal of Business Ethics. 51(2). pp. 129-141. Available at: https://www.jstor.org/stable/25379179 (Accessed: 5^th May 2021).

Davidson, P. and Griffin, R. (2000). Management Australia in a Global Context. Brisbane: John Wiley and Sons.

Greenburg, J. (2002). Who stole the money, and when? Individual and situational determinants of employee theft. Organizational Behavior and Human decision Processes. 89(1). pp. 985-1003. doi: 10.1016/S0749-5978(02)00039-0

Grigoropoulos, J. (2019). The Role of Ethics in 21st Century Organizations. International Journal of Progressive Education. 15(2). pp. 167-175. doi: 10.29329/ijpe.2019.189.12.

Harisson, M. (2005). An introduction to business and management ethics. New York: Palgrave Macmillan. doi: 10.1007/978-0-230-80225-4

HNB (2021). Environment. HNB. Available at: https://www.hnb.net/about-the-bank/sustainability-csr/environment  (Accessed: 5^th May 2021).

Kaptein, M. (2011). From Inaction to External Whistleblowing: The Influence of the Ethical Culture of Organizations on Employee Responses to Observed Wrongdoing. Journal of Business Ethics. 98(3). pp. 513-530. doi: 10.1007/s10551-010-0591-1

Kaptein, M. (2008). Ethics Programs and Ethical Culture: A Next Step in Unraveling Their Multi-Faceted Relationship. Journal of Business Ethics. 89(2). pp. 261-281. doi: 10.1007/s10551-008-9998-3

Krishnamurthy, P. (2011). An Introduction to Ethics. SSRN Electronic Journal. pp. 1-26. doi:10.2139/ssrn.1781502.

Lennick, D. and Kiel, F. (2005). Moral Intelligence: Enhancing Business Performance and Leadership Success. New Jersey: Wharton School Publishing.

McMurrian, R. and Matulich, E. (2006). Building customer value and profitability with business ethics. Journal of Business and Economics Research. 4(11). pp. 11-18. doi: 10.19030/jber.v14i3.9748

Mihelič, K., Lipičnik, B. and Tekavčič, M. (2010). Ethical Leadership. International Journal of Management and Information Systems. 14(5). pp. 31-42. doi: 10.19030/ijmis.v14i5.11

Meyers, C. (2004). Institutional culture and individual behavior: Creating an ethical environment. Science and Engineering Ethics. 10. pp. 269-276. doi:10.1007/s11948-004-0022-8

Paliwal, M. (2006). Business Ethics. New Delhi: New Age Publications.

Robbins, S. and Judge, T. (2013). Organizational Behavior. 15^th edn. United States: Pearson Education.

Terec-Vlad, L. and Cucu, M. (2016). Ethics and Organizational Culture – Key Elements Regarding the Development of Economic Activities. Eco forum. 5(1). pp. 192-198. Available at: https://core.ac.uk/download/pdf/236086351.pdf (Accessed: 03^rd May 2021).

The Business Mindset. (2020).The importance of Business Ethics. Available at: https://www.youtube.com/watch?v=pHrDUu4Rjtg (Accessed: 5^th May 2021).

Tota, I. and Shehu, H. (2012). The Dilemma of Business Ethics. Procedia Economics and Finance. 3. pp. 555-559. doi:10.1016/S2212-5671(12)00195-5

Treviño, L., Hartman, L. and Brown, M. (2000). Moral Person and Moral Manager: How Executives Develop a Reputation for Ethical Leadership. California Management Review. 42(4). pp. 128-142. doi:10.2307/41166057

Verhezen, P. (2010). Giving Voice in a Culture of Silence. From a Culture of Compliance to a Culture of Integrity. Journal of Business Ethics. 96(2). pp. 187-206. doi: 10.1007/s10551-010-0458-5

Victoria, A. (2018). Business Ethics. Research Gate. doi:10.13140/RG.2.2.31350.86082