Lecture 9 Code of Ethics

Organizational Culture & Code of Ethics

Introduction

  • Organizational culture is defined by shared values, norms, and beliefs among members of an organization.

  • This culture is taught to new members as the standard way to think, feel, and behave within the organization.

  • It sets the foundation for ethical behavior and supports ethical decision-making.

  • Corporate culture and a code of ethics guide employees to align their actions with the company's vision and mission.

Levels of Corporate Culture

  • Observable symbols

    • Includes ceremonies, stories, slogans, behaviors, dress, and physical settings.

  • Underlying values

    • Comprises assumptions, beliefs, attitudes, and feelings.

Emergence & Purpose of Culture

  • Provides a sense of organizational identity.

  • Functions of culture in organizations:

    • Internal integration: To help members relate and work together.

    • External adaptation: To achieve goals and engage with outsiders.

Culture Strength and Subcultures

  • Culture strength refers to the degree of agreement among members about specific values.

  • Subcultures may arise, reflecting the common problems and goals within departments.

  • Different departments may develop their own norms.

Constructive vs Non-Constructive Culture

  • Constructive Culture:

    • Observable behaviors: Managers pay attention to all stakeholders and initiate change for broader interests, even at risk.

    • Underlying values: Emphasis on caring for stakeholders and valuing processes for useful change.

  • Non-Constructive Culture:

    • Observable behaviors: Managers are more bureaucratic, resistant to change, and comfortable with the status quo.

    • Underlying values: Focus is primarily on self-interest or immediate work group rather than organizational change.

How Managers Shape Culture & Ethics

  • Value-based leadership:

    • Leaders base decisions on core values and principles, focusing on integrity and ethical behavior for long-term goals.

    • Prioritize the well-being of the team, organization, and society to align with company values.

  • Formal structure and systems:

    • Structure defines roles, responsibilities, and communication flow.

    • Code of ethics and training programs enhance employee skills and knowledge, crucial for ethical leadership.

Code of Ethics (COE)

  • A written document outlining acceptable and unacceptable behaviors for employees.

  • COE defines moral standards that members must respect in decision-making.

The Tradition and Reputation of COE

  • Historical significance, with examples like the Hippocratic Oath guiding doctors' ethics for over 2000 years.

  • In the past three decades, COEs have been integrated into business practices.

Ambiguous Nature of COE

  • Effectiveness varies; some COEs guide behavior effectively while others are ineffectual.

  • Emphasis on making COE effective requires special effort.

Alternative Names for COE

  • Other terms include:

    • Credo

    • Declaration of business principles

    • Value statement

    • Standard of conduct

    • Code of conduct

Examples of COEs

  • Sime Darby Berhad's Code: Prioritizes ethical behavior and responsibilities in achieving high standards of conduct.

  • University of Malaya's Code: Standards of behavior for staff and students involved in research, emphasizing ethical conduct.

  • PETRONAS Code of Conduct: Focuses on values like customer focus, integrity, and performance.

Internal Purposes of COE

  • Establishes standards for acceptable behavior, raising ethical awareness.

  • Prevents unethical behavior by specifying intolerable conduct.

  • Promotes ethical values guiding decision-making.

  • Aids in organizational integration around shared values.

External Purposes of COE

  • Enhances reputation among external stakeholders.

  • Pacifies concerns from interest groups regarding organizational actions.

  • Demonstrates commitment to avoiding immoral practices.

Role of Managers in COE

  • Upper management should reflect the desire for compliance with ethical values.

  • Managers should be involved in creating and implementing the COE to ensure its relevance and effectiveness.

Inadequacies of COE

  • COEs that do not address high-risk areas within operations fail to maintain ethical standards.

  • Must cover internal operations, sales, and financial practices to be effective.

Development and Content of COE

  • Components affecting development:

    • Social values

    • Organizational factors

    • Personal factors

  • Typical content areas:

    • Rationale for the code and its significance.

    • Ethical values and standards that guide behavior.

    • Guidelines for conduct, including specific actions to avoid malpractice.

    • Sanctions for ignoring the code.

Benefits of a Code of Ethics

  • Increases employee loyalty and reduces turnover.

  • Decreases questionable behavior through clear expectations.

  • Improves competitive positioning and managerial confidence.

  • Enhances employee relations and solidifies customer relationships.

Role of Government Regulations

  • U.S. laws like the Sarbanes-Oxley Act mandate publicly traded companies to disclose their COE.

  • Regulations vary in Malaysia regarding ethical standards and guidelines.

Global Codes of Ethics

  • Includes frameworks such as Caux Round Table Principles and United Nations Global Compact's Ten Principles.

Malaysian Business Code of Ethics

  • Based on the cultural values of Malaysia, promoting self-regulation among traders.

  • Aims to uphold high business ethics for the benefit of consumers and traders.

Principles of the Malaysian Business Code

  1. Honesty in Business Dealing: Transparency in transactions.

  2. Responsibility to Customers, Society, and Environment: Ethical product offerings.

  3. Geniality Towards Fellow Humans: Respect and cooperation in dealings.

  4. Moderation in Business: Humility and charity.

  5. Fair Treatment of Customers: Equity without discrimination.

  6. Zeal in Success: Tenacity and courage in pursuit of goals.