Organizational Ethics and Values and their Importance

Organizational Ethics and Values and their Importance

Corporate governance refers to the system by which an organization is directed and controlled. One of the goals of corporate governance is to create a set of internal mechanisms to ensure sound managerial decisions are made, considering the rights and responsibilities of various stakeholders, together with the ethical norms and standards of the organization. Creating and maintaining a positive ethical environment in the organization has been recognized as an important aspect of corporate governance, reducing the costs associated with more intrusive, possibly less effective, means of formal social control, the costs of damaged reputation, and reduced asset value when ethical wrongdoings come to light. Failure to maintain an appropriate ethical culture and to provide employees with appropriate models of ethical behaviour can have a high cost for the organization. The ethical environment is most effective when the employees are internally motivated to behave ethically. Effective corporate governance is improved when there is harmony between organizational and individual ethics.

The organizational culture, which is created because of the repeated interactions between the members of the organization, is the collective programming of the mind which distinguishes the employees of one organization from another. Hence, the organizational culture incorporates the ethics, and values, the knowledge, the models of thinking and behaving of the employees, which assign the organization its specificity. From formal perspective, organizational culture is made up of beliefs, values, and impressions which are shared within the organization. Informally it can be understood as representing the style, the environment, or the personality of the organization.

The word ‘ethics’ is derived from the Greek word ‘ethos’, meaning ‘customary’ or ‘conventional’. Ethics is built on good work practices and what is right. It provides general guidelines on good behaviour / conduct of individuals, group, organization as a whole. Ethics determines what is right or wrong and choosing what is right. If governs the behaviour and conduct of individuals / groups in the workplace. It is one of the hallmarks of a well-run organization. It re-assures investors / stakeholders about the organization’s approach to its non-financial risks. It also help to protect / improve the reputation of the organization (e.g., corporate image / branding). To be ethical in the sense of ethos is to conform to what is typically done, and to obey the conventions and rules of the organization and the society. Ethics involves a discipline which examines good or bad practices within the context of a moral duty. Moral conduct is behaviour which is right or wrong. Organizational ethics include practices and behaviours which are good or bad.

The term organizational ethics is a broad and dynamic concept comprising ethical environment, levels of trust, moral awareness, and ways of acting which ensure that a shared set of values which promotes the common good becomes the prevailing culture of the organization. Organizational ethics includes both the corporate values and the financial practices of the organization. They relate to all aspects of the organization including mission, vision, governance, and leadership.

The term organizational ethics includes not only culture and trust, but also processes, outcomes, and character and denotes a way of acting, and not a code of principles. It is at heart, pumping blood which perfuses the entire organization with a common sense of purpose and a shared set of values. The ethics of the organization refers to the attempt of the organization to define its values, recognize values which can cause tension, seek best solutions to these tensions, and manage the operations to maintain the values. The ethics process serves as a mechanism for the organization to address ethical issues regarding financial, business, management, and relationship decisions.

Organizational ethics and values are the principles and standards which determine acceptable conduct in the organization. They relate to actions, which are characterized by honesty, integrity, morality, and good management practices. Organizational ethics and values are very important since they build trust and confidence in various relationships. They are necessary for the organization for it to be successful. The important aspect of organizational ethics and values is their application to everyday operational processes, behaviour, and policies. As a practice these are to be applied to all the employees in the organization, regardless of position, level of responsibility, and range of responsibilities. These are rules of morality which are applied to all the employees alike.

The organization, which has codes of ethics, realizes that these efforts improve its reputation, positively affect employees’ commitment to work, and improve customers’ loyalty. Organizational ethics and values are particularly important in dealing with the customers. They improve the customers’ trust in the organization and its products. Customers today take into account the organizational behaviour when buying products. Hence, the organization is required to communicate honestly and openly with the customers and understand their requirements.

Organization with ethics and values carries good relations with its stakeholders. Customers, suppliers, investors, retailers, employees, the media, the regulatory authorities, members of the surrounding community, competitors, and even the environment are stakeholders for the organization. That is, they are individuals and entities affected by the organizational decisions. Stakeholders typically value a management team which chooses the ethical way to accomplish the organization’s legitimate for the profit goals.

Organizational core values are to reflect and to honour the organizational traditions as well as to serve as a bridge between the mission and management decisions, to create a unique moral identity, and to generate organizational pride. Dedication to core values gives the organization strategic focus and provides stability in a crisis. They can and are to be the major component of the organizational ‘soul’, and help to both recruit a workforce looking for more than the salary, and a customer base looking for something beyond basic product and service.

Organization with ethics and values is fully accepted and not criticized by the stakeholders. Organization with a good reputation finds it easier to do more business and gain resources from stakeholders. As a result, behaving ethically increases the organizational profits. Organizational ethics and values can also bring other significant benefits to the organization. For example, they make employees to stay with the organization hence reduce the employees’ turnover, increase productivity, reduce recruitment costs, attract investors, and keep the organizational share price high.

Organizational ethics and values help the organization to have a good reputation. The organization abides by the ethics and values standards it has set itself and comply fully with all relevant statutory regulations. Organization without ethics and values damages its reputation and becomes less appealing to the stakeholders. The products of such organization are not liked by the customers. For sustainable success as well as for its survival, the organization is required to have a culture in which ethics and values are embedded deeply.

Ethics refers to a code of conduct which guides an individual in dealing with others. Organizational ethics examine ethical issues which arise in an organizational environment. It is related to all the disciplines of the organization such as production, sales and marketing, finance, purchase, and human resource management etc. Ethical behaviour is very important when dealing with any stakeholders who has a claim on and a stake in the organization. The stakeholders can directly benefit or suffer loss by the organizational actions. Hence, the organizational ethics are very important to them.

Ethics consists of the values by which the organization demonstrates the goals, policies, and practices of the organization. It is the heart of the organizational culture. The quality of experience of the stakeholders with the organization depends on the quality of its culture. Whether it is employees, customers, or suppliers, a positive culture enlivens and enriches the experience of the stakeholder regarding the organization, and a negative culture diminishes it. There is no doubt that whatever the ethics and values are used in the structure of the organization, there are less negative results for the management.

Some of reputed definitions of ethics are (i) the ethics is collection of principles and values which specify the goodness or badness of behaviour of individual, group or the organization, (ii) the ethics is principles and methods which specify the standards of goodness or badness, and (iii) the ethics is method of encounter to bad or good matters with observance of spiritual duties and responsibilities. The important thing from the ethics is that all have human understanding and admirable, logical and acceptable behaviour.

Managers in the organization face ethical issues every day of their working lives. There is seldom a decision they face which does not have an ethical dimension or facet to it. In addition to facing ethical aspects in their decision making, they confront ethical issues as they carry out their responsibilities. Whether they be engaged in planning, organizing, motivating, communicating, or some other management role, they face the fact that matters of right and wrong, fairness and unfairness, and justice or lack of justice creep into their decisions, actions, or behaviours. Also, it does not matter what level of management is under consideration, top, middle, or lower, managers at all levels and in all disciplines, face situations wherein ethical considerations play a major role.

Ethics help the managers make ‘right versus right’ choices. When worthy goals conflict and the managers cannot choose between two goals, the ethics guide the decision making. While discussing a ‘right versus right’ choice, managers can be tempted to justify their personal choice as ethical and judge other choices as unethical. An ‘I am ethical, and you are not’ approach to a dilemma is not only self-righteous, it also has a chilling effect on debate and blocks ethical learning. Managers are better served by framing answers as ‘more adequate’ and ‘less adequate’, instead of as ‘ethical’ and ‘unethical’.

A more adequate ethical choice considers what is at stake or at risk for more of the parties affected by the decision, and prioritizes moral appeals over appeals to statutory regulations, roles, contracts or existing organizational practices. Although such things can be part of the managerial choices, appeals to moral criteria fall more in line with ethics. Such things can be appeal to ideals which are shared by others, regardless of age, culture or personal preference, not narrow rigid principles or characteristic personal beliefs. Managers are to be unbiased, refusing to favour some at the expense of others.

Values form an important basis for ethical behaviour. Values can be assessed on both the individual and the organizational levels. The correspondence between the individual’s values and the values of the organization can be called ‘person-organizational fit’’ or ‘congruence’.

Values are ‘what is chosen as worthwhile’, or believed to have merit in a general or broad sense. Issues of right or wrong are related to one’s values. So, values represent a specific mode of conduct or end state of existence which is personally or socially preferable to the opposite or converse mode of conduct or end-state of existence. Values are deep-seated ideas and feelings which manifest themselves as behaviour or conduct. The true reflection of people’s values is their action. Values are unwavering and enduring. They represent the foundations of the person’s character. Moreover, they are the abstract version of what people believe to be right. They guide what actions are proper and meaningful for individuals to pursue. Also, values have intensity which explains how important they are. When the people experience their values becoming internal, the value also become part of their character. Moreover, their actions become impulsive and constant and intuitive.

The significance of values and ethics cannot be overstated. The implementation of ethical practices and programmes in the organizational environment can be challenging. All the disciplines are to be included in the design process, and policies are to be applicable to all the employees, with respect to people being employed, fired, as well as there is to be respect for and employee privacy. Also, besides the responsibilities which the organization has towards its employees, it is of utmost importance that the employees support their organization, are trustworthy and loyal. In addition to the employees and the management, there are internal and external stakeholders who affect and are affected by the organization. Hence, they are to be considered regarding their interests and welfares when designing the ethics programme’s policies, and practices.

Organizations need to have a sound set of values on which it premises all policies and actions to survive and achieve success. They need to have   core values to meet challenges in a changing environment. The faithful adherence of the management to values is an important factor in success of the organization.  In an ideal organization, structures and relationships work together around core values which exceed self-interest. Core values inspire value-creating efforts as employees feel inspired to do what is right, even when the right thing is hard to do.

Values can be defined as those things which are important to or valued by someone. That someone can be an individual or, collectively, an organization. One place where values are important is in relation to vision. One of the imperatives for organizational vision is that it is to be based on and consistent with the organizational core values.

Values are the set of preferences which are in inborn within individuals. They are embedded in individuals. They differ amongst individuals. Individual values do change temporarily mainly because of external influences / forces. Individuals have different sets of values. Values reflect employees’ sense of right or wrong. Values lay the foundation in understanding employees’ attitude and motivation. Values exert major influence on the behaviour of an individual / group. Values serves as general guidelines in all situations.

Values are what the employees, as a profession, judge to be right. They are more than words. They are the moral, ethical, and professional attributes of the character. They are the embodiment of what the organization stands for, and are to be the basis for the behaviour of its members. Ethical values serve the ends of human well-being. The well-being promoted by ethical values is not personal and selfish well-being. The well-being of an employee is not to be considered as more worthy or valuable than another employee. Ethical values promote human well-being in an impartial way.

Values exert major influence on the behaviour of an individual / group. Values serves as general guidelines in all situations. Values are said to be the cause and ethics effect. If one operates in a given instance from a value emotion within, then the outward action ends to be ethical. Values are those beliefs or standards which incline the employees to act or to choose in one way rather than another. The organizational core values are those beliefs and principles which provide the ultimate guide in the organizational decision-making.

Value is defined as a concept which describes the beliefs of an individual or a culture. A set of values can be placed into the notion of a value system. Values are those things which really matter to each of the employees. They are the ideas and beliefs, which the employees hold as special. Caring for others, for example, is a value. The word ‘values’ can sometimes be interpreted with having only to do with ‘touchy-feely’ type things like feelings. However, the idea of values, when it comes to management / strategy, relates much more to practical matters. There is a huge correlation between correct value alignment and success.

Organizations which do not embed shared values in day-to-day operations tend to lack the foundation necessary for developing a strong ethics culture. Another key element of a strong culture is the presence of ethical leadership. Specifically, managers are to hold themselves accountable and support their employees in following their organization’s ethics standards. Organization which lacks ethical leadership does not develop an organizational culture grounded in ethical decision-making.

Ethics deal with ‘what that ought to be’. It is defined as the study of individual and collective moral awareness, judgment, character and conduct. Organizational ethics is an art and science of maintaining harmonious relationship with society, its various group of employees and institutions as well as recognizing the moral responsibility for the rightness or wrongness of the organizational conduct.

Several values have been identified which motivate human action. Among these values, two ethical values are pre-eminent namely (i) benevolence, and (ii) universalism. These are called self-transcendence values since they motivate actions which benefit others, not just oneself. Benevolence is about enhancing and preserving the well-being of other people. Universalism seeks to protect and enhance the rights and interests of all people and of nature.

People normally assign top priority to benevolence, followed closely by universalism. Self-direction values, including creativity, curiosity, freedom, self-respect and choosing one’s own goals, come in a close third. Although not strictly focused on others, they do support the expression of benevolence and universalism. The self-enhancement values are priorities which seek to further self-interest alone. Most people place the values of self-enhancement far lower on their priority lists. At the bottom is power, which includes wealth, authority, social recognition and preserving one’s public image. Another value which sits at the bottom of these lists is pleasure-seeking, or self-indulgence. Management systems which appeal to employees’ self-enhancement values, make it difficult to create an ethical culture which exceeds the bare minimum of adhering to the statutory regulations. Organizations with better ethical cultures promote self-transcending values, making them part and parcel of employees’ daily work

If the employees believe that their organization and the management is fair, respectful, and trustworthy and that the organizational values and practices are ethically justified, they meet or exceed expectations. Human resource management department can shape the practices to reflect self-transcending values and hence set the stage for employees to meet the goals of the ethical organization. Shaping an ethical workplace culture needs disciplined attention to four ingredients in the organization. These are (i) compliance, (ii) fairness, (iii) motive-based trust, and (iv) a working ethical self-concept as shown in Fig 1.

Fig 1 Four building block of ethical culture

Compliance – It refers to the norms, values, and ethical expectations set by the organization and its management practices. It is the foundation on which every ethical organizational culture stands. The organizational norms, values, and expectations are to be communicated in concrete terms so that all the employees can understand and they relate them directly to their daily work activities. If employees cannot see how the organizational values safeguard the mission and enhance their own contribution to that mission, they then view compliance as a bothersome add-on, rather than as part of everyday work.

Statutory regulation needs a minimum level of compliance in the organization, but legal compliance alone does not build an effective ethical organizational culture. Organization which aims only for compliance normally get less than the minimum. Effective organizational cultures ensure compliance by making values and ethical expectations crystal clear by repeating the norms, values and expectations in a multitude of ways across a wide selection of communications. They also use other elements of ethical culture to raise employees’ ethical commitment far above the bare minimum needed by legal and social conventions.

Fairness – Fairness refers to the perceived justice of the policies and practices which affect employees and their work. If employees perceive the organization and its management as fair and just, then trust can be built. However, if the employees perceive the organizational policies and practices or those of its management as unfair or unjust, distrust cripples the performance. Employees assess the fairness of the organization and of its management based on how managers treat the employees. They look at decision-making, personal interactions, information-sharing, compensation and promotion, and resources allocation. Each of these factors triggers concerns about justice namely procedural justice, inter-personal justice, and informational justice. Weakness in or violations of any one of these factors diminish the overall sense of an organization’s fairness.

If the organization espouses and acts on ethical values, such as respect, honesty, responsibility, care, compassion, and loyalty, then employees assess the culture and the management as fair and just. By contrast, when employees perceive management as acting to improve its own interests, creating unfair policies, or ignoring existing good policies and procedures, employees not only decide that the organization is unfair but also withdraw their support. Employees come to work hard-wired to expect fairness. In short, employees want justice along with their salaries. The most effective ethical organizational culture weaves ethical values seamlessly into every aspect of the work.

Care costs very little. Respect costs less. Both are priceless in terms of engendering employees’ positive attitudes toward the organization. Organization may not pay employees above-average wages prevalent in the industry, yet if employees’ high expectations for an ethical work culture are met, they strive to fulfill customers’ expectations as well, resulting in above-average performance of the organization.

Motive based trust– Motive based trust is important for shaping an ethical organizational culture. It refers to the assessment employees make regarding the ethical character of those with whom they interact at work. Ethical character in managers is necessary to foster trust and performance in the organization. Employees constantly revise their assessment of managers and co-employees based on their experience of behaviour and observed traits, trusting those whose intentions seem ethical.

Managers who model ethical behaviour build motive-based trust, so that even when these managers make mistakes, employees continue to trust them. Among the most important characteristics for trustworthy managers are (i) willingness to listen to the criticism, (ii) willingness to admit and take responsibility for ethical mistakes, and (iii) willingness to ask for forgiveness and take corrective action. When management and the managers are good role models, when they demonstrate universal ethical values, then the employees meet the expectations and even give extra time and effort to accomplish the organizational goals. The most effective ethical organizational culture diligently and consistently cultivates trustworthiness in management and the managers, promoting and even requiring positive role-modelling and relationship building.

Ethical working self-concept – It refers to the degree to which employees make the ethical values of the organization part of their concept of who they are and what is expected of them as members of the organization. This new sense of self for employees at every level is the most powerful of the four ingredients of ethical organizational culture and cannot be created without the other three. If employees frame their definitions of who they are and what is important to them in terms of the organizational values, then they always strive to take actions consistent with those values. Organizations can either promote or impede the process of internalizing organizational values.

Organizational management enshrines its values in five Ps, expressed in terms of ethical values. These are (i) people who are inspired to be the best they can be, (ii) planet the organization is to become a responsible global citizen which makes a difference, (iii) partners which means that the organization nurtures a winning network of partners and build mutual loyalty, (iv) portfolio which means that the organization bring to the market a portfolio of the product brands which anticipate and satisfy customers’ desires and needs, and (v) profit which means maximization of the returns to share-holders while being mindful of the overall responsibilities. Each of these beliefs are translated into specific goals to be implemented across the organization.

Management is to shape an ethical organizational culture. The management is to author it and is to be committed to it. It is part of trusting people. Several studies have demonstrated that an ethical working self-concept stimulates employees to display the highest levels of ethical judgment and action, as well as the motivation to go above and beyond what their job description needs. But employees only make such investments if the organization does its part in creating and maintaining the first three building blocks of an ethical workplace culture. A devotion to ethical values is to be at the heart of the management approach.

The elements of the ethical organization include (i) employees feel genuinely cared for and respected, (ii) employees, regardless of rank or role, put the work at hand and the interests of others above themselves, (iii) managers live by clear standards and self-transcending principles when conducting the organizational operations, modelling a drive for excellence both in what they do and how they do it, (iv) employees feel empowered and energized to reach for ethical and technical excellence in serving customers, suppliers, and each other, (v) employees hold themselves and their managers accountable to uncompromising standards of conduct, (vi) employees at all the levels move toward, not away from, ethical dilemmas and conflicts to address and resolve them in light of self-transcending ideals, and (vii) the ethical lessons learned during conflicts alter the organizational practices, setting in motion a virtuous cycle of improvement.

The organizational ethics and the ethical values are very important for the sustainable progress of the organization in today’s globalized world of high competition. These are the backbone in the field of organizational external dealings and hence it is necessary to create awareness about the concept and essence of the organizational ethics and the ethical values amongst the employees.

The organizational ethics and the ethical values include honesty, integrity, responsibility, quality, trust, respect, teamwork, leadership, corporate citizenship, shareholder value, social ethics, moral modes, a customer-centric focus, employee satisfaction, customer satisfaction, and finally leading to sustainable organizational operations. The organizational ethics and the ethical values help in satisfying the customers, suppliers, and employees in maintaining sustainable organizational presence in the market place. Rationale is a viable approach based on natural values related to the betterment of humanity. It demands honest dealing and proper organizational ethics which are in the interest of customers, suppliers, and even employees which lead to sustainable business in the corporate world. Since originality is independent, it depends upon the values which hold the best interest of humanity. It is expressed on the basis of originality.

Organizational ethics are closely related to the organizational culture, and represents a set of assumptions, beliefs, values the organization developed to overcome issues related to the internal and external environment and to help new members to guide actions in this environment. An ethical organization is one which produces quality goods and services with economic efficiency, promotes development of human resource management, is environmentally friendly, and achieves people respect.

A series of values is the basic component of the organizational culture. From several decades, the ethical values and the commitment of employees are considered very important in the organization. This is since the strong relationship between values and managerial behaviour is evident as the managerial decisions are not made within a void. Ethical values of shareholders, managers or employees represent a strong motivation to develop a pro-social behaviour which determines the organization to get involved in the social environment.

The values and ethics-based organization culture is especially relevant to managers since it establishes the restrictions on their work. The existence of ethic codes in the organization, as a set of rules meant to guide the behaviour of the employees. The ethical environment in the organization is defined as a socio-cultural environment, the shared perceptions of what is ethically correct behaviour, and how ethical issues are to be handled. When written ethical behaviour codes are effectively communicated and understood in the organization, it is likely to result a greater ethical behaviour of the organizational employees.

Culture is a critical component of every organization. When a strong ethics culture is present across the organization, employees know not only what type of behaviour is expected but also what is unacceptable. Organizations working towards developing a strong organizational culture need to focus on reinforcing a wide array of ethics-related programme elements. Central among these elements is the integration of shared values throughout the organization. In order to encourage their employees to make good decisions, management is looked upon to establish a set of shared organizational values and demonstrate to employees that those values play a critical role in their everyday on-the-job decision-making.

When employees perceive that the management is committed to organizational values and ethical leadership, a tone is set for all the employees. In contrast, a lack of commitment from the management can be a signal to employees that values are little more than window dressing and that the managers, and hence all the employees, are not actually expected to adhere to the values or model ethical behaviour.

In addition to higher rates of misconduct, employees with a weak commitment to the organizational values and ethical leadership are more likely to compromise their organization’s ethics standards, policies, or the statutory regulations.

In a broad construction of the ethical role of the management, managing and leading can be said to be inherently ethics-laden tasks since managerial decisions affect either people or the natural environment in some way, and these effects or impacts need to be taken into consideration as decisions are made. A narrower construction of the ethical role of the management is that management is to serve only the interests of the shareholder, that is, its sole ethical task is to meet the fiduciary obligation to maximize shareholder wealth and things which is embedded in the statutory regulations. However, even in this narrow view, although not always recognized explicitly, ethics are at the core of management practice.

The ethical role of management is broadened beyond the responsibility of trust when consideration is given to the management of the multiple stakeholders of the organization and the environment, on which depends the survival of the organization. Organizational decisions affect both stakeholders and nature. Hence, a logical conclusion is that those decisions have ethical content inherently and that managerial decisions, behaviours, and actions are therefore inherently ethical in nature. Whenever there are impacts due to a decision, behaviour, or action which the management makes, there are ethical aspects to that decision or situation. The decisions and actions have consequences, and this implies to some degree of ethics, high or low. Hence, ethics and the managerial role are closely related and cannot be separated.

The ethical role of the management is a combination of being a moral person and being a moral manager. Being a moral person rests on a combination of key traits such as integrity, honesty, and trustworthiness. Integrity involves not only forthrightness and honesty or truthfulness but also consideration for the soundness of the whole entity which the management manages as well as of the society in which the organization is located. Integrity also means strict adherence to a code, such as an ethical code of conduct. Hence, being a moral person suggests that the management has integrity and can be trusted. In addition to these traits, being a moral person also involves behaviours such as doing the right thing, concern for people, being open, and standards of personal integrity.

The essence of ethics, of course, is doing the right thing, especially under difficult situations, and this involves being able to reason well about what the right thing to do actually is. To be able to reason well about a difficult ethical situation, the management needs to be open to learning from multiple sources about the situation while taking care not to harm people and actually attempting to treat people well in the decision-making process or when decisions are being implemented. To be able to make good decisions ethically, the management is required to have thoughtfully developed the set of standards or values, a personal code of conduct or integrity. The set of standards allow the management to think through a decision with a clear rationale in mind.

When decisions involving ethical considerations need to be made, the moral management sticks to the core values, tries to be objective and fair, displays concern for the employees and their welfare, and follows ethical decision-making rules. But being a moral management is not the only requirement for becoming a moral management. Moral management also includes being a moral manager, which involves recognition that the management serves as a role model for others in its duties. It also means providing rewards and discipline around the ethical and unethical decisions made by others, so that a clear message is sent about what behaviours are and are not acceptable in the organization or situation. In addition, moral management means communicating openly, explicitly, and frequently about ethics and values.

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