Role of Ethics in Organizational Functioning

Role of Ethics in Organizational Functioning

An organization is generally defined as a group, in number from two people to tens of thousands of people, who intentionally aims to accomplish a shared common goal or a set of goals. In order to achieve shared goals, the organization acts as a system composed of (i) inputs such as resources both human and monetary, (ii) processes such as strategies to accomplish goals, (iii) outputs such as products and services, and (iv) outcomes such as end results or benefits to consumers. The ethics of the organization refers to the active attempt of the organization to define its mission and core principles, to identify values which can cause tension, to seek best solutions to these tensions, and to manage the operations which maintain its values.

Ethics in the functioning of the organization means the application of ethical values and morals to everyday processes, behaviours, and policies of the organization. It is a practice which is applied uniformly to everyone employed in the organization, regardless of the position, level of responsibility, and range of responsibilities. It is related to all the organizational disciplines such as human resource management, production, sales and marketing, and finance etc. In the organizational context, ethics is non-negotiable.

Providing a comprehensive and simple definition for ethics is very difficult task since the ethics is concerned with such matters as value, belief, trust, good and bad, and honesty and dishonesty etc. and all  these words themselves need to be define. Some of the reputed definitions of ethics are (i) ethics is collection of principles and values which specify the goodness or badness of behaviour of an individual, a group, or an organization, (ii) ethics is principles and methods which specify the standards of goodness or badness, and (iii) ethics is method to encounter bad or good matters with the observance of spiritual duties and responsibilities. The important thing regarding ethics is the human understanding of the admirable, logical and acceptable behaviour.

Organizational ethics can also be defined as the principles and standards which determine acceptable conduct in the organization. Ethics is very important in organizational dealings since it builds trust and confidence in the relationships. Ethics is essential for the organization as well as for its success. Organization with codes of ethics realizes that these efforts can improve reputation, positively affect employees’ commitment to work and enhance customers’ loyalty. Organizational ethics is particularly important in dealing with customers.

Although several people use the terms ‘ethics’ and ‘morality’ interchangeably, the two terms do not mean the same thing. While the ethics is a system of moral principles and methods of applying them, the morality is the differentiation of intentions, decisions, and actions between those which are right and those which are wrong. Management can promote ethical behaviour by employees by limiting their opportunity to engage in misconduct. Incidences of unethical behaviour can be reduced by ethical policies, formal codes of ethics, and ethics training programs informing employees what is expected of them and providing punishments for those who fail to comply.

Ethics refers to a code of conduct which guides the employees in dealing with others and it is non-negotiable. The morality rules and ethical behaviour codes of the organization apply uniformly to all the employees alike. Ethical behaviour and undertakings relate to actions, which are characterized by honesty, integrity, morality, and good management practices. Ethics are the values the organization demonstrates in its goals, policies, and practices and. It is the heart of the workplace culture. Organization which has ethical workplace culture outperforms the competitors and peers in all the categories that matter.

Broadly speaking, organizational ethics is concerned with standards and principles for human behaviour within the organizational structure to avoid harmful behaviour and to promote those behaviours which ensure an ambiance of fairness, trust, honesty and respect. The common ground which the organizational ethics shares with business ethics and practical ethics is the pursuit of what is right and just.

Ethical behaviour is based on values such as trustworthiness, respect, responsibility, caring, fairness and justice, and good citizenship. It also depends on the adherence to moral rules. Organizational values tell what is important and this, in turn, helps in making decisions about right and wrong. Morals are the rules for deciding what is good and what is bad. The six core ethical values of the organizational ethics which influences the ethical behaviour are given below and shown in Fig 1.

  • Trustworthiness – It is the broadest and most complicated of the core ethical values. It is a broad value concerned with all the qualities and behaviours which makes a person worthy of trust especially integrity, honesty, promise keeping, and loyalty.
  • Respect – Respect focuses on the moral obligation to honour the essential worth and dignity of the individual. It is expressed in terms of positive qualities such as civility, courtesy, dignity, autonomy, tolerance, and acceptance. It also involves prohibitions against such conduct as violence, humiliation, manipulation, and exploitation etc.
  • Responsibility – It speaks of the moral obligations to be accountable, perusal of excellence, and exercising of self-restraint.
  • Fairness and justice – Fairness and justice embodies concern with equity, equality, impartiality, proportionality, openness, and due process.
  • Caring – It is the central value relating to sincere and abiding concern for the well being of others. Concepts of charity, kindness, compassion, empathy, and sharing are included under caring.
  • Citizenship – The concept of citizenship includes civic virtues and duties which prescribe how the organization ought to behave as part of a community. The exercise of good citizenship requires doing one’s share to make society work and demonstrating a concern for future generations. A good citizen, for example, respects the regulatory norms, reports crimes, serves on juries, votes, pays taxes, and protects the environment.

Fig 1 Core ethical values of the organizational ethics

Ethics and the notion of ethical behaviour and value systems in the organizational setting have become an organizational precedence in the present century. Ethos was first discussed in the ancient Greek philosophic circles, where it was a principle characterizing the virtuous and moral beliefs, attitudes, and acts. Ethics today is neither a luxury nor an option. Organizational ethics is a set of principles which guides the organizational practices to reflect a concern for society as a whole while pursuing the profits.

The importance of the principle of ethical behaviour had not been ‘apparent’ until recent years that individuals and organizations have been trying to find ways that ethical behaviour can be integrated into corporate practices. Internal and external stakeholders have been pressuring organizations to support ethical practices within and throughout their organizations in order for the latter to be promoting procedures and practices aiming towards common good and benefit.

Ethics as a practice does not merely affect the organizational decision-making but consequently the organizational culture overall. For the achievement of this ideal, there is to be an alignment process which integrates organizational ethics with mission, vision, strategies, and goals. Ethical principles have bedrock on social values and thus the alignment is relevant to the relationships while interpersonal anticipations are defined. The outcome, which is an ethical organization, is the utmost gratifying one. Internal and external relationships are built and enhanced. Hence, all parties involved directly or indirectly are treated well consistently and an ethical culture emerges. A great opportunity awaits the organizations  which integrates the ethical practices in their everyday operations.

Organizational ethics examines ethical problems which arise in the organizational environment. Ethical behaviour is very important when dealing with the stakeholders who have a claim on and a stake in the organization. The main stakeholder groups are shareholders, managers, employees, suppliers and distributors, customers, community, society, and nation. Stakeholders can directly benefit or suffer loss by the actions of the organization. Hence, the business ethics of the organization is very important to them.

Ethics consists of the standards of behaviour to which the employees hold themselves in their personal and professional lives. It establishes the levels of honesty, empathy, and trustworthiness and other virtues by which they identify their personal behaviour and their public reputation. In their professional lives, ethics guides their interactions with customers, clients, colleagues, employees, and shareholders affected by the business practices in the same way the ethics set norms in the personal lives for the ways for the interaction with the family and friends.

Organizational ethics includes both corporate and business ethics, and, put in another way, both the corporate values and the financial practices of the organization. It relates to all aspects of the organization including mission, vision, governance, and leadership. Within the industry, organizational ethics encompasses the professional and moral codes of the organizational conduct and it can reflect the conduct toward employees, customers, suppliers, contractors, or any other stakeholders. While compliance programs are important, the organizational ethics strategy is to be broader than just the compliance programs which typically focus on statutoryl and regulatory requirements.

Organizational ethics includes all those actions which are embedded into several issues such as informed consent, research, marketing, access, conflict of interest, financial management, and public policy etc. They provide a means for them to be addressed by individuals within the organization. There are guiding principles which are to be used to guide ethical organizational behaviour which are to be considered, implicitly or explicitly, in every decision made by the organization and its representatives. The guiding principles include (i) carrying out of the duties in a faithful and disciplined manner, (ii) honesty in financial dealings, (iii) giving work output which is of high quality, (iv) fulfilling of duties towards fellow employees, (v) respecting the organizational codes of conduct, (vi) respecting the disciplines connected with various organizational and technological processes, (vii) fairness in dealings with people both inside and outside the organization, (viii) fair distribution of scarce resources, (ix) complying regulatory norms without any violations, and (x) fulfilling duties towards community and preservation of environment.

Although a relatively new concept, organizational ethics actually fits easily into the framework of the traditional ethical principles of respect for persons, beneficence, and justice. Respect is earned by organizational senior management personnel who model ethical behaviour, and by employees who replicate these behaviours. Beneficence is achieved by organizations recruiting and maintaining ethical employees, developing an ethical culture, and implementing programs in an ethical manner.

Organizational ethics is different than the personal ethics since in several organizations, there is more than one person involved. Whether a small or a large organization, it is a group of people joining hand and force to run the organization and create revenue. The success or failure of the organization can affect the shareholders, stakeholders and even the society where the organization operates. Ethical standard formulates the organizational culture, influences the employees’ working spirit, shows a good image to the public, develops trusts from the customers, and has advantage from potential customers and / or potential business partners. When people argue that ethics are not to be the primary focus for the organizational management, they are certainly wrong. Trust is what leads other organizations to choose one organization to be its partner, which keeps a customer loyal to a brand, and which attract potential customer to try out a product. And undoubtedly, people are more willing to trust the organization which is known for its ethical culture.

Ethical organizations have more advantage over their competitors. Organizations which violate the ethical standards can face the judgement of law, and / or criticism of the public. Legally, an act is not a criminal act until proven guilty for example several organizations abide the law, but their actions are those which cannot be called ethical. This includes for an example lying about the capability of the products etc. Violation of the organizational ethics can exists in several forms such as bribery, sexual harassment, patent or copyright infringement, lying and deceit about product performance and safety, deliberate use of harmful substances, intentional environmental pollution, discrimination, dangerous working condition, and violations of promises etc.

For clarifying the roles within an organization, the principle of ‘ethics starts at the top’ holds firm. It is reasonable to think that the task of ethics management involves leadership personnel to initiate the inclusive process of defining the organizational guiding values, to create an environment which sustains ethically sound behaviour, and to instill a sense of shared accountability among employees. This conceptual understanding focuses attention on the downstream effects of an effective organizational ethics action plan to include but not limited to the policy-making, moral awareness, moral distress, ethical climate, trustworthiness, compliance, integrity, self-evaluation, and measures to assess corporate social responsibility in maintaining the common goal. In order to engage in the realm of ethics, the task of the organization is to develop both short term and long term goals and programs which support and nurture ethical behaviour at all the levels of the employees.

Organizational management is responsible for practices such as creating the foundations for the resourceful and ethical performance of the organization. It is one of the most powerful and important aspects of human activities in the organization. Organization invests tremendous amounts of funds on training effective leaders given that the long term survival as well as growth of organization starts with ethical leadership. It is common knowledge that integrating ethics into the organization requires true leaders who are promoting the organizational ethical mission, vision, goals, and objectives. The ethical leaders are to continuously assess the employees’ needs and expectations, motivate them and direct them, in an effort to reach and materialize the shared mission and vision. Ethical leaders are the key to communicate organizational values and beliefs. To take the organizations on excellence path, a blend of strategy and culture is needed which effective leadership can achieve. Strategic thinking and cultural building can be built up by leader’s moral principles and integrity. Leadership makes real difference between success and failure.

The most important responsibility of the organizational management is to create, install, and nurture organizational culture, which is based on values and principles. This can be accomplished by taking into account four essential elements. First, leadership is to instill shared core values, such as honesty, respect, responsibility, fairness, and compassion and these are to be the ones which are driving decision-making within the organization. Second, the organization is to have a common and shared language which all the employees understand and feel comfortable to discuss even sensitive or challenging issues. This language is the language of ethics, which is to be deeply integrated in the organizational infrastructure. Third, organizational management commitment for the efficient, effective, and purposeful delivery of the ethical program, while rewarding the individuals who abide by the ethical policies, makes the program stronger while the ethical culture is deeply installed. Fourth, facing upto the challenges which can surface, the procedures and policies can be carried out to satisfy the common benefit of the stakeholders and the organization, while neither management nor the employees feel intimidated or stressed by the challenge or options available for decision- making to be achieved.

There are certain parameters, which influence the extensive level and degree to which ethics is applied in the organization. These include globalization, technology, intangible assets, and talent management etc. In addition, there are factors, which restrict ethical intentions and behaviour such as increasing competition, pressure for profits and return on investment, high corruption levels in the society, values and morals not considered important by younger generations, the expectancy of fast money and profits, and disregard for social responsibility, honesty, and integrity.

However, organizations which are inclined in performing according to ethical standards, morals and values, have recognized the importance and significance that ethical procedures and policies are communicated and practiced throughout the entire organization, while at the same time becoming a priority for the administration of the organization. These standards are to be modeled and practiced while having the commitment of the administration of the organization. Moreover, there is a requirement for the establishment of a formal code of ethics outlining the policies, regulations, and expectations for all stakeholders.

The code of ethics is to be thoroughly communicated throughout the organization in formal an informal ways (written and oral communication) while making sure that there is provision for guidance and support in cases of dilemmas or insecurities. The organization is to provide a thorough training program to prepare the employees for the policies, practices, and expectations in order to increase employee ‘ethical awareness’ and to ‘define criteria for ethical decision-making within the organization’.

Additionally, when designing ethical programmes, it is necessary to assign the leading role for the ethical implementation throughout the organization to an ethics manager who is to undertake the role of a guide towards ethical decision-making and practices. Also, the ethics manager is to encourage accountability and ownership towards the ethical program throughout the organization. The ethics manager is to design response and enforcement methodologies through the provision of rewards. Further, investigations and provision of consequences in cases of behaviours, which are not in accordance to the ethical program, are to be reinforced by the ethics manager, while evaluating the programme when the need arises for reevaluation and redesigning of sections of the programme.

The role of ethics in management is also dependent on the level of responsibility the organization is willing to take. The pro-active mode characterizes the organization which believes strongly in its mission as moral (or at least for the benefit of society). It responds as a trend setter to some of the ethical dilemmas. The re-active mode, characterizes the organizations which are aware of social responsibility, respond to immediate situations rather than anticipating them. The passive mode leads the organization to deviant behaviour by refusing responsibility. There are two main extremes found in the corporate world, profit on one side and human safety, which constitute an ethical spectrum.

Managers in organizations 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 leadership 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. Furthermore, it does not matter what level of management is under consideration – top, middle, or lower; managers at all levels, and in all functions, face situations wherein ethical considerations play a major role.

Ethics and the statutory regulations are the systems defining the rules of conduct. Majority of the people in the organization know why the statutory regulations are to be adhered to. Statutory regulations are important social rules with serious penalties. The regulations tell what are allowed and what are not allowed to be done, and breaking of the regulations frequently leads to punishment. There is indeed a considerable overlap between ethics and the regulations. In practice, the statutory regulations are essentially an institutionalization of ethics into specific social rules, regulations, and proscriptions. Nevertheless, they are not equivalent. Fig 2 shows relationship between ethics and regulations.

Fig 2 Relationship between ethics and regulations

The statutory regulations can be said to be a definition of the minimum acceptable standards of behaviour. However, the statutory regulations, whether in the organizational dealings or elsewhere, do not explicitly forbid many morally contestable issues. Similarly, it is possible to think of issues which are covered by the statutory regulations, but which are not really about ethics. In one sense then, the domain of organizational ethics can be said to begin ‘where the statutory regulations ends’. Organizational ethics is primarily concerned with those issues, which are either not covered by the statutory regulations, or where there is no definite consensus on whether something is right or wrong.

Statutory regulations are  public’s agency for translating morality into explicit social guidelines and practices, but for most of the issues of interest to organizational ethics, the statutory regulations typically does not presently provide any guidance. For this reason, it is frequently said that organizational ethics is about the ‘grey areas’ of its operation, or about going ‘beyond the statutory regulations minimum’. Moreover, ‘ethical’ responsibilities are depicted as those which are above and beyond statutory responsibilities.

The influence of the organization on the society is greater than ever before. Organization affects the life of the people living in the communities around it. Several issues can arise in the communities because of the functioning of the organization. Organizational ethics helps to understand the reasons of arising of the issues and the methods to address them. Further, malpractices have the potential to inflict enormous harm on the individuals, the communities, and the environment. Organizational ethics help in understanding more about the causes and consequences of these malpractices, and search for methods to improve the human condition in the communities.

Further, the demands being placed on the organizations to be ethical by their various stakeholders are constantly becoming more complex and more challenging. Organizational ethics provides the means to appreciate and understand these challenges more clearly, so that the organizations can meet these ethical expectations more effectively. Also, ethics can help to improve ethical decision making by providing management with the appropriate knowledge and tools which allow them to correctly identify, diagnose, and provide solutions to the ethical problems and dilemmas they are confronted with. In addition, ethics provides management with a way of looking at the reasons behind such problems, and the ways in which such problems can be dealt with.

Ethics also has influence on the stakeholders. The main stakeholder groups are shareholders, senior management personnel, employees, customers, suppliers and distributors, community, and society. Shareholders always want the organization to achieve maximum profits. Hence, they pay attention to the organization and its management. They want to ensure that management and employees behave ethically and that they care about the reputation of the organization.

Senior management personnel are crucial since they are responsible for the profitable operation of the organization. They are not to behave unethically or to pursue goals which threaten the organizational interests. They have to act ethically with regard to the needs of people in the organization and the community. They are to provide a safe and healthy working environment of work. Finally, they are to provide a reasonable balance for employees between their private life and their work and protect them against harmful practices at work. Management is frequently confronted with ethical problems in the work place involving employees. There are many ways, in which senior management influence the employees to behave ethically. There are five steps which are needed to establish an ethical workplace. These are (i) framing of the corporate values and making sure that all the employees understand them, (ii) making sure the management itself act with integrity and ensure that employees and other shareholders also do so as well, (iii) demonstration of appreciation and gratitude strengthens the ethical foundation of the organization and encourages ethical behaviour from the employees, (iv) work for success of the organization through the employees’ success, and (v) making sure the decisions made reflect the ethical standards and values.

Employees work for financial gain. Management frequently set various conditions to employment, such as a dress code and respectful behaviour. Employees have to be loyal to the organization they work for. Ethical conduct enables them to integrate their personal goals with the organizational objectives. Organizations with an ethical approach believe that the employees are more committed to the organizational success. With ethical approach, they work harder for the achievement of the organizational objectives. Ethics in the organization attracts talent and ensures motivation amongst the employees. However, employees are to be treated fairly, with dignity and respect. Hence, management is to act ethically towards employees and meet their expectations by creating a structure which fairly rewards them for their work.

Organizational ethics is especially important in dealing with customers since they are the most critical stakeholders. Organization needs satisfied customers. When customers are satisfied, they are loyal to the organization and to the organizational products. Customers are satisfied if the organization follows all the ethical norms and values. Customers have more trust and confidence in the marketing personnel who follow ethical rules. Therefore, the only way to survive in the market is to be honest and fair.

Organizations interact with their suppliers and distributors. Ethical suppliers supply high quality products and seek long-term profitability. Suppliers expect to be paid fairly and without delay for their inputs. Distributors expect to receive high quality products at agreed-upon prices. The most important issues connected with the payments or the qualities of products are governed by the terms of the legal contracts, whereas many other issues are dependent on business ethics. The organization is to treat the suppliers with fairness and integrity and build mutually beneficial relationships, regardless of the value of the transaction or the length of the association. In addition, organization is to monitor the suppliers and distributors that they adhere to the principles defined in the code of conduct and take appropriate action if behaviours are contrary to these principles.

Community refers to the location, in which the organization is located. The community provides the organization with the utilities and the work force which allow it to function. The organization contributes to the economy of the region in which it operates and very often determines the prosperity of the community surrounding it. It is very important to build positive relationships within the communities. The local traditions, customs, and cultures are to be respected. The organization is needed to resolve the community issues amicably. The organization is not to attempt to improve its profits by engaging in actions which can hurt the community surrounding it.

The important benefits of ethic management in working environment of the organization include (i) effective coordination of the behaviours and the values of the line managers and the employees which has a positive effect on the work environment resulting into team work, improved performance, and the productivity of the employees, (ii) prevents development of close personal relationship at the work place and the relationship at the workplace is guided only by the organizational values, thus preventing favours which can be there due to close personal relationship, (iii) prevents corruption since organization values prevents the employees from taking bribes, (iv) Improves attitude with colleagues and customers, (v) there is reduction in the unwanted behaviours such as quarrel, rough attitude, rebellion, and flattery , (vi) improvement in the obligation feeling increases the faithfulness towards the organization, (vii) improvements in discipline and regularity, (viii) improvements towards compliance towards meeting the goals of the organization, (ix) prevention of tension at the workplace leading to peaceful working, (x) improvement in addressing the customer related issues resulting improved customer satisfaction, (xi) prevention of personalized negative or positive feelings with employees or group of employees, (xii) improvements in the organizational effectiveness and productivity, (xiii) service life becomes more useful and purposeful, (xiv) provides a descent picture of the organization to the outside world.

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