Derek H. T. Walker, Michael Segon and Steve Rowlinson
Chapter introduction
Some aspects of business ethics and corporate citizenship have an obvious relationship to project procurement. From an ethical point of view, the need to banish corruption and expunge exploitation is a given – or at least the espoused position of all reasonable people is that there is no place for these behaviours in a civilised world. So, there must be rules, standards and provisions that safeguard us from these extreme and unconscionable behaviours. This is where governance and cultural pressures from within organisations and society impose a way in which procurement of projects happens such that it does not solely satisfy the need for one particular group, organisation or individual to benefit unsustainably at the expense of others. The ontological perspective that we adopt in this chapter, and indeed in this book, is that the outcome of projects is a beneficial change that adds value and that this value should be sustainable and meets the needs of genuine project stakeholders. In this respect, this chapter links very closely with Chapter 3, Chapter 6 and Chapter 9 and somewhat to Chapter 8 and Chapter 10.
Sustainability has an important link to procurement. People influence and drive the process of initiating, designing and delivering the mechanisms that result in completed projects. People who influence that PM process have a range of motivations and needs, and different perceptions of what success and the project outcome should look like. This is why this chapter links to Chapter 3. People (the market) determine what they demand, and if business destroys their capacity to procure projects then the reason for these projects is removed. The definition of project success and what constitutes value (as discussed in Chapter 6) directly relates to ethics, corporate citizenship and governance issues that view value with a focus on sustainability in its broader sense. Much of ethics and the governance issues associated with cor-porate citizenship relate directly to culture, both organisationally and socially. This is closely anchored in notions of trust and commitment as dis-cussed in Chapter 9. Projects require talented people to deliver projects and the expected benefits from those projects, so attracting talented people is a
vital sustainability issue. Determining procurement governance structures and processes links with a project’s capacity to deliver innovation and learn-ing (discussed in Chapter 8) because rules, procedures and reward systems can be used to encourage and facilitate innovation. Similarly, ethics and governance are linked to providing an environment where supply chain partners and project team members choose organisations that they consider to be partners of choice (discussed in Chapter 10).
This chapter is presented in three broad sections, with a vignette at the end of the chapter which prompts relevant questions. The first section deals with theoretical underpinning relating to business and social ethics because this also forms the basis for corporate citizenship and corporate responsibility. It is relevant to project procurement choices because it helps us to understand the perspective of any given set of procurement arrangements that the pro-ject appears to endorse or be guided by. This section also explains the underpinning of what can be seen as a particular style of professional behav-iour. Behaviour of course is cultural, value-laden and thus contestable so it makes an interesting point of debate and strategic advantage differentiation.
The second section relates to explaining and exploring the triple-bottom line (3BL) concept and its impact upon project procurement decisions because it considers the financial perspective as well as social and environ-mental dimensions. This has informed decisions about how to structure a procurement process for some industries, most notably the oil and gas industry. An interesting recent development is the increasing use of instru-ments that can be used for capitalising on green credits, and this is an area that most texts on procurement have failed to recognise or discuss. The emerging nature of this aspect means that it will receive an exploratory and somewhat cursory treatment that hopefully will develop in future editions.
The third section relates to the impact of governance on procurement options. This section briefly discusses corporate governance because projects fit into programs that are managed within portfolios to achieve corporate strategic goals – these days the strategic advantage is strongly influenced by competitive advantage based upon differentiation as well as cost efficiencies. Governance is both fundamental and practical for procurement because it is about the rules, regulations and measures that protect integrity and fair play, as well as protect project investors against muddled and mishandled approaches to managing projects. In some industries where the project outcome is highly tangible such as buildings, planes, ships, etc. there is a special focus on health, safety and the environment, and so we will devote a sub-section of governance to that which impact upon procurement choice and governance requirements.
Fundamental theoretical underpinnings of ethics
As managers, we are expected to make decisions that advance the interests of the organisation. In fact, we become agents of an organisation and in
effect are legally bound to advance the interests of the organisation and its shareholders. Decision making is the essence of a manager’s job and yet, as discussed in Chapter 5, Mintzberg (1990) identified most managers as being reactive decisions makers. Child (1986) also identified that managers tend to look to the first solution that appears to satisfy minimum criteria, rather than the best option. Such decision-making practice often leads to poor-quality outcomes which may expose organisations and managers to risk. This chapter is concerned with improving decision making by addressing the ethical dimensions. Including an ethics filter as part of the processes that enhances decision making by identifying the degree of risk associated with decisions, and the filter assists managers to develop defensible positions for their decisions and actions.
What is ethics?
In general, ethics is concerned with what is right, fair, just or good; about what we ought to do, not just what is the case or what is most acceptable or expedient (Preston, 1996: 16). Ethics is a multifaceted concept that includes the study of morality, the legitimacy of moral claims and the basis of justification of decisions. As we will see, organisations develop policies and procedures as part of corporate governance for individuals to follow – this is an example of normative ethics or the clarification of behaviour standards about what we ought to do. As ethics is directly concerned with behaviour it therefore has relevance to the way people behave in organisations.
Ethics can best be understood by considering a number of perspectives.
● philosophy and philosophical thinking about morality, moral problems and moral judgment (Beauchamp and Bowie, 1997);
● defined, as a study of what is good or right for people, what goals they ought to pursue and what actions they ought to perform (Velasquez, 1998);
● concerning itself with human conduct or activity that is done knowingly and consciously (Robbins and Mukerji, 1990) and
● actions and practices directed towards improving the welfare of people and attaining a good life (Buchholz, 1989).
An important question to answer is why should we consider ethics at all in business? There are some who argue that business transactions and business activity are limited activities, and as such managers are constrained to only consider actions that advance the interests of the organisation. This position advocates that managers are constrained in their decision making to only consider decisions that advance shareholder interests and it is wrong for them to engage in socially responsible activity, other than obeying the law – a view of the classical approach to socially responsible practice which was popularised by economist Milton Friedman in his significant article
‘The social responsibility of business is to increase its profits’ published in 1970 (Donaldson and Werhane, 1999).
However, Allinson (1998) has argued that ethics is fundamental to business conduct. He contends that a moral relationship lies at the basis of agreements and contracts between two people or two organisations, and that unless there is a basis of trust, business cannot proceed. This view suggests that the organisation is a moral player in society with duties and responsibilities, and in order to advance its interests it must engage in behav-iour that is acknowledged to be at least the minimum moral standard. More recently, business ethics literature has focused on the business case for organ-isations developing ethical cultures. Related to the issue of trust between businesses and stakeholders as identified by Allinson (1998), the develop-ment of ethical cultures and business practices, as evidenced by the existence of codes of ethics, integrity systems and socially responsible strategies, strengthens the relationship between the organisation and the key stake-holders such as consumers (Freeman, 1999). This suggests that there is a direct relationship to business profitability, as evidenced by improved sales and sustained growth or a negative relationship to costs. This can be seen as another argument in support of organisational ethical frameworks.
Whilst research is clearly emerging that supports the long-held view that ethics is good for business (Carroll and Meeks, 1999), there is another reason why we should consider ethics at the micro level of managerial decision making. We all have slightly different understandings about what is ethical. Our moral values are shaped over time, influenced by a range of factors including our parents and upbringing, religion, formal and informal education and our cultural identity among other experiences (Buchholz, 1989). We should not presume that our understanding and application of ethics is necessarily correct or that others will agree with our interpretation.
What is required is a considered and informed approach rather than an intuitive or gut feel to ethical decision making. We should incorporate a sys-tematic approach to defining the ethical dimensions to our decisions and ensure that our business practices are ethical because it’s the right and profitable thing to do. The study of business ethics does not just mean moralising about what should or should not be done in a particular situation. Rather it systematically links the concepts of morality, responsibility, and decision making in organisations (Ferrell and Fraedrich, 1997).
What is an ethical issue?
An ethical issue can be seen as a problem, situation or opportunity, which has several possible options, and where each must be evaluated as right or wrong, ethical or unethical. Aguilar (1994: 33) states ‘Managers who are sensitive to the ethical content of business decisions and operational
activities, who agree to behave ethically, and who hold compatible views on how to analyse ethical situations still must confront the inherently perplexing nature of many ethical problems.’ Managers talking about workplace ethical problems often describe dilemmas, situations in which they were faced with a difficult choice and where no clear-cut right answers existed.
Managers face ethical issues on a daily basis, issues such as dealing with clients, marketing and advertising, product liability and safety, privacy of employee records, employee discipline and relations with competitors, the tricky topic of gifts, invitations from suppliers – all have ethical dimension.
Ferrell, Fraedrich and Ferrell (2002) classified the ethical issues relevant to most organisations into four key areas: First, conflicts of interest; second, honesty and fairness; third, communications and fourth, relationships within the organisation.
A conflict of interest exists when an individual has the opportunity to take a decision which advances his or her own interest rather than that of the organisation. It is important to acknowledge that people often will make judgements about perceived, rather than actual, conflicts of interest.
Separating private interests from business dealing helps employees avoid conflicts of interest. In project procurement terms, accepting bribes, personal payments and gifts are considered conflicts of interest in most
‘Western’ countries. However, in some countries, gift giving is commonly accepted as part of relationship building to establish trust and rapport with business partners. This concept is referred to in China as ‘guanxi’ (Low and Leong, 2000) and should not be confused with bribery. We discuss this aspect in more detail in Chapter 9. Maintaining transparency is an effective strategy in minimising conflicts of interest.
Honesty and fairness can be seen as principles that most people would acknowledge as typifying ethical behaviour. As Ferrell et al. (2002) suggest, these relate to a decision maker’s general characteristics or traits. It is expected that people, at the least, follow all applicable laws and regulations and should not knowingly harm customers, employees, clients or competitors through deception, misrepresentation or coercion.
Fraudulent behaviour1and corruption can be seen as a subset of conflict of interest; however, it can also be systemic and involve many individuals and groups. Ferrell et al. (2002: 33) define fraud as ‘any purposeful communication that deceives, manipulates or conceals facts in order to create a false impression’. This would include financial records, advertising messages, tender selection, etc. where the organisation’s message to customers and stakeholders needs to be truthful.
This last focus looks at areas such as relations with colleagues, meeting obligations and responsibilities, and not placing pressure on others to encourage them to take unethical actions. We should recognise that many laws exist that directly deal with interpersonal relationships and their
ethical dimension. Anti-bribery, anti-collusive tendering practices, equal employment opportunity and anti-discrimination legislation are examples of laws which seek to ensure that people are not related unethically.
Explaining ethical behaviour
Behaviour is a function of many variables. We cannot simply say that people are born good or bad and thus their actions are always predictable.
What we can do is examine how people make decisions and the factors which seem to impact on or influence their decision-making process.
One of the best explanations for how people make ethical decisions is probably that developed by Lawrence Kohlberg. He found that in order for people to behave morally they must, among other things, decide what course of action is morally right and then they must choose the morally right path over others. Kohlberg’s theory primarily focuses on the first process, the process by which people decide what is morally right (French and Granrose, 1995).
Kohlberg proposed that individuals arrive at differing moral judgments about the same issues because they possess differing stages of cognitive moral development. He proposed a six-stage model of cognitive moral development, with each stage representing progressively more sophisticated moral evolution. These six stages can be grouped together in pairs to form three levels: pre-conventional, conventional and post-conventional. By implication, persons at higher stages of moral development tend to consider factors other then their own benefit, when identifying and resolving moral or ethical issues, however, they can comprehend all reasoning at stages below them, but cannot comprehend the reasoning of stages any more than one above there own (French and Granrose, 1995). This suggests that within organisations individuals may reach different decisions concerning the same action or circumstances if not governed by specific guidelines or decision criteria. Kohlberg suggests that when a dilemma presents itself, which cannot be resolved, explained or seems to contradict our own current level of reasoning, we gain maturity and move through these stages. This can occur through general interaction with others, peers, colleagues or through more formal methods such as education and training (French and Granrose, 1995).
Level 1 – pre-conventional level
The pre-conventional level is characterised by people making decisions which are based on self-interest, mitigated by rewards and punishment, and externally imposed rules such as law or organisational policies.
In stage one how people decide whether an action is right is largely determined by the rewards, punishments and favours associated with the action. This suggests people follow laws and rules automatically because
they do not want the negative consequences, for example, reprimands, fines, etc. or because they are rewarded through prizes, salaries, etc.
At stage two people begin to recognise that they need to work with others so that they can attain their goals – they acknowledge others and a duty to them; however, they are still motivated largely by self-interest. This concept is known as reciprocity. The ‘scratch my back and I’ll scratch yours’
approach. People engage in behaviour that they know will yield possible favours in return, or feel obliged to repay a debt.
Level 2 – conventional level
At this level people have recognised the importance of a group in society, usually family or some important clan/grouping. Generally, living up to the roles and expectations of others and fulfilling duties and obligations and following rules and laws within that group is determined as doing the ‘right thing’. This is highly relevant to organisations as it highlights the importance of leaders and supervisors in influencing the behaviour of employees.
According to business research most people operate at this level within organisations, highlighting the importance of leadership and culture, and at the following stage where the importance of organisational policies and pro-cedures act as guiding principles, rendered as distinct from strict compliance (Ferrell et al., 2002).
At stage three people value their belonging to a group and value the importance of group interaction. They tend to judge actions as right, based on the norms and standards of the group, or based on the belief that the action or outcome will be favoured by the group or the leader of the group.
The important concepts are those of trust and loyalty. So people may do what is asked of them by a boss or managers because they want to please them or because others whom they respect say it’s important to follow the directions of the bosses.
At stage four people’s perspective broadens to consider the wider societal group. People tend to make decisions based on the agreed duties and following rules, which are designed to promote the common good. Whilst people have a broader perspective than that described at stage three, there is still a boundary that people use to define the wider societal group to the exclusion of others. This might be at a state or national level or some other basis of categorising the group. This could be used to explain why some state governments will take a decision that advances their own state but is to the detriment of another.
Level 3 – post-conventional or principled level
At this level people have gone beyond notions of self-interest or referent groups; rather they make their own decisions based on more principled notions consistent with justice and rights. This tends to be of greatest
relevance to organisations when engaged in ‘socially responsible’ or corporate citizenship activities.
At stage five people still regard rules and laws are important because they maintain social cohesion (known as the concept of social contract);
however, people are prepared to change laws for usual social purposes. In addition, people consider the concept of moral law, that which exists beyond the written law, as contributing toward societal well being.
At stage six people have moved to a higher level in which the notion of universal laws and principles are applied.
Kohlberg’s approach is not about understanding the action. In fact, people operating at different levels may make the same decision or take the same action but for different reasons. This concept explains how they came to make their decision and helps explain how they see the world and criti-cal factors influencing their decisions (French and Granrose, 1995).
An ethics bank
Recent research suggests that some people’s approach to ethical decision making is not necessarily determined by levels of moral maturity, rather it is a conscious decision to follow an action, which they know to be wrong but argue that it is mitigated by other good deeds they have done in the past. This has been referred to as an ‘ethics bank’ in which an ethics balance is established where good behaviour is deposited so as to allow the occasional withdrawal via bad behaviour.
This suggests that people generally follow a path which results in accepted morally right actions. Either consciously or unconsciously they keep track of the ‘value’ of these actions in effect building up credits of
‘good’. Then, when confronted by a decision which they know to be ethically unacceptable, but which may be of sufficient importance or value to them, they may engage in a conscious and rational process of determining how many ethically right actions they could trade off in order to pursue the action.
Perhaps this type of decision making is most evident at an organisational level where companies engage in actions, which have a real or perceived detrimental impact on society, or pursue actions which are knowingly wrong, for example, pollution, or use or sell unsafe products etc. The organisation then does something which society will recognise as beneficial in order to restore balance. For example, a mining company may build roads, schools or hospitals for a community in compensation for ecological damage, which they may not redress for economic reasons.
Ethical reasoning
There are many ways of studying and analysing management decision making and action. Ethical theories describe general approaches to thinking that
allows ethical principles to be drawn and applied to concrete actions and management practices.
What questions should we ask? What factors should we consider?
Velasquez (1998) suggests that the first step in analysing moral issues is obvious but not always easy: get the facts – something we know from Mintzberg’s (1975) study of what managers do and seem reluctant to do.
Some decisions result in ethical controversies simply because we haven’t collected enough information about the decision and its consequences.
However, having the facts is not enough to ensure that the decision is not just profitable but also ethical. As Preston (1996) suggests, facts can be verified but they do not tell us what to do. We need to use facts as part of the decision-making process but according to Velasquez (1998), we also need to resolve the ethical issue through an appeal to values.
There are a number of ways that we can analyse the ethical dimension associated with a decision. Buchholz (1989) suggests that ethical theories are not just ways of analysing a decision but they may also enable us to justify it. He argues that a critical issue in decision making is being able to defend a decision using a variety of perspectives.
Determining ethics according to outcome
Often individuals and organisations determine whether a decision or action is ethical based predominantly on the actual or perceived value of the outcome that is generated. These approaches are also called consequentialist theories, and the two most often discussed are utilitarianism and egoism.
They hold that the moral worth of an action or practice is determined solely by the consequences of the practice or action and not on the intent of the action. A decision or an act undertaken by an individual or a group would be considered right if the outcome generates benefits greater than the harm produced (the ‘greater good’). This approach to decision making uses a decision-making system that parallels cost–benefit analysis and thus is very appealing to business. It assumes that everything can be valued and measured.
THE EGOTIST APPROACH (SELF-INTEREST)
As the name suggests, this approach focuses largely on benefits that can accrue to the individual. An act is considered morally right or wrong solely on the outcomes for one’s self. Self-interest underpins ethical egoism and many argue that the pursuit of self-interest will lead to optimal allocation of resources in a free market system. Self-interest will provide the motivation for people to work hard, take risks and innovate, etc., thus guaranteeing economic growth.
Whilst this is a popular approach to defining ethical behaviour, many theorists suggest that it is a narrow interpretation. Under this concept, many actions that are clearly not beneficial to society could be argued as