Besides the morality issues surrounding ethics in the workplace,76there is increasing evidence that ethics programs and being ethical pays off for organizations. Although in the past the linkage between corporate social performance and bottom-line results has been vague or dependent on faith and anecdotal evidence, the cost of illegal, unethical practices is now clearly documented, and recent research studies find a sta-tistically significant relationship. For example, one study compared 67 Fortune 500 firms that were convicted of acts such as antitrust violations, product liabilities, and acts of discrimination with 188 firms in the same time period that were not. The results indicated that the convicted firms had significantly lower returns on assets and returns on sales.77
OB in Action: After Enron: The Ideal Corporation
Every summer for the past 10 years, Jack Stack has been going to Massachusetts Institute of Technology’s Sloan School of Management to speak with young chief exec-utives about the ideals and values of the engine manu-facturing company he helped to make a management paragon. In the late 1980s, Stack’s Springfield ReManu-facturing Corp. emerged as a model for how manage-ment and labor could successfully work together in a culture of trust and ownership. Thousands of managers flocked to his company to hear his ideas while others gathered to hear him during his annual trek to MIT for its Birthing of Giants program for new CEOs.
But as the dot-com era took hold in the late 1990s, Stack saw a change in the attitudes of the business leaders who showed up at MIT. They seemed far more ambitious for themselves than for their companies. They were building organizations to flip, not to last. They were more inter-ested in the value of their stockholdings than the profits of their companies. They told him his ideas for tapping into the enthusiasm, intelligence, and creativity of working peo-ple were antiquated. And they said he was out of touch.
Stack says that even he began to think of himself as a dinosaur. “So many young CEOs were mesmerized by getting a $1 million or $2 million pop, selling out, and then getting out of town,” he says. “They forgot that business is all about values.”
Suddenly, leaders like Stack—people who take con-cepts like ethics and fairness seriously—are back in vogue in a big way. In the post-Enron, post-bubble world, there’s a yearning for corporate values that reach higher than the size of the chief executive’s paycheck or even the latest stock price. Trust, integrity, and fairness do matter, and they are crucial to the bottom line. The cor-porate leaders and entrepreneurs who somehow forgot that are now paying the price in a downward market roiled by a loss of investor confidence. “The chasm that separates individuals and organizations is marked by frustration, mistrust, disappointment, and even rage,”
says Shoshana Zuboff, a Harvard Business School profes-sor and co-author of a book called The Support Economy.
The realization that many companies played fast and loose with accounting rules and ethical standards in the 1990s is leading to a reevaluation of corporate goals and purpose. Zuboff and many other business observers are optimistic that the abuses now dominating the head-lines may result in healthy changes in the post-Enron modern corporation. What’s emerging is a new model of the ideal corporation.
Business leaders say corporations will likely become far more transparent—not only for investors, but also for employees, customers, and suppliers. The single-minded focus on “shareholder value,” which measured performance on the sole basis of stock price, will diminish.
48
Instead, companies will elevate the interests of employ-ees, customers, and their communities. Executive pay, which clearly soared out of control in the past two decades, is already undergoing a reassessment and will likely fall back in an effort to create a sense of fairness.
And corporate cultures will change in a way that puts greater emphasis on integrity and trust.
In the anything-goes 1990s, too many companies allowed performance to be disconnected from meaning-ful corporate values. “A lot of companies simply looked at performance in assessing their leaders,” says Larry John-ston, CEO of Albertson’s Inc., the food retailer. “There have to be two dimensions to leadership: performance and values. You can’t have one without the other.”
This and other changes will be driven less by the threat of government intervention and more by the stigma of being branded an unethical enterprise. That’s why the government’s newfound zeal to indict individuals and even companies carries such power, regardless of how the cases are resolved. “Social sanctions may eclipse the law in imposing penalties for misconduct and mischief,” says Richard T. Pascale, a management authority and author of Surfing the Edge of Chaos. “The corporation of the future has to think about this new development as an increasingly formidable factor to be reckoned with.”
That’s a change from the 1990s, when pressure from Wall Street and the dot-com mania led to much of the corporate excess. During those years, when Stack found his ideas decidedly out of favor, he stuck with the “open-book management” culture that had made him some-thing of a celebrity years earlier. By sharing all of the company’s financials with all employees and giving them an ownership stake in the company, Stack had built a level of mutual trust and respect unusual in business.
If there’s one change that nearly everyone foresees today, it’s a move to make the corporation far more trans-parent. That’s obvious when it comes to investors, who are demanding truth in the numbers and clarity in disclo-sure. But it’s also important for employees if they’re to have a true sense of ownership in their company’s affairs.
At Stack’s company, there are weekly huddles with work-ers and managwork-ers, prominent scorecards on factory walls charting work progress, and ongoing emphasis by man-agers on building a company and not just a product.
Workers undergo training so they can understand the numbers on a balance sheet and an income statement.
Corporate cultures, which in many cases veered out of control in the 1990s by emphasizing profit at any cost, are also in for an overhaul. More than anything else, those beliefs and attitudes are set by the top execs. The values they espouse, the incentives they put in place, and their own behavior provide the cues for the rest of the organization.
Chapter 2 Environmental Context: Globalization, Diversity, and Ethics 49
Other studies have found a strong link between a company’s ethical commitment and its market value added (MVA)78and the investment in social programs and the firm’s financial outcomes.79 The social programs involved community and employee relations, product characteristics, diversity, and especially an ethical organizational culture.80 Some firms with widely recognized reputations for having an ethical culture include Ben & Jerry’s (ice cream), Johnson & Johnson’s (health care), Levi Strauss (clothing), and Newman’s Own (food). For example, Johnson & Johnsons “credo,” authored by the son of the founder, spells out the firm’s first responsibility is to customers, second to employees, third to the commu-nity and environment, and then fourth to the shareholders. As a current VP at J&J explains,
“When we operate according to these principles, the stockholders should realize a fair return. What that means is that the credo is not a brake on our success; it’s the engine of our success.”81In terms of research, one study focusing on the environment found a strong pos-itive relationship between having preventative, proactive programs (e.g., pollution control and/or reduction of hazardous waste) and bottom-line profitability gains.82
This accumulating evidence on the value of ethical practices is leading to the develop-ment of theory, research, and measuredevelop-ment of corporate social responsibility (CSR) or performance (CSP).83Although there are various definitions of CSR, “most share the theme of engaging in economically sustainable business activities that go beyond legal requirements to protect the well-being of employees, communities, and the environ-ment.”84For example, besides the currently popular efforts on the part of companies to reduce carbon emissions to help sustain the planet, there are also less publicized CSR pro-grams such as Burger King’s perspective and policies with regard to animal rights (e.g., the use of cage-free chicken products). In practice there are newly created ethics offıcer positions, and control systems are being suggested to monitor ethical behaviors.85As the accompanying OB in Action: After Enron: The Ideal Corporation indicates, there are some ideal organizations, such as the Springfield ReManufacturing Corporation, that are based on trust, total transparency (i.e., the famous “open-book management” pioneered at ReManufacturing), and mutual respect leading to ethical organizational cultures. On the other hand, there are also simple guidelines for employees to follow in doing the authen-tic,86right thing in ethical gray areas. Here is an “ethics quick test” when employees are faced with such a dilemma:
1. Is the action legal?
2. Is it right?
3. Who will be affected?
4. Does it fit the company’s values?
5. How would I feel afterwards?
6. How would it look in the newspaper?
7. Will it reflect poorly on the company?87
Besides the moral issues and ethics program’s guidelines and organizational cultural cli-mate, in the framework of this chapter on the environmental context for today’s organiza-tions, ethics also has an impact on the way employees are treated and how they perform their jobs. In other words, like globalization and diversity, ethics can affect the well-being of employees and their performance.
Summary
This chapter examines the environmental context in terms of globalization, diversity, and ethics. The new “flat-world” international context in which organizational behavior oper-ates has become an increasingly important environmental context. Few would question that50 Part One Environmental and Organizational Context
there is now globalization and that cultural differences must be recognized in the study and understanding of organizational behavior.
Two other major environmental realities facing modern organizations are diversity and ethics. There are a number of reasons for the rise of diversity in organizations, including the increasing number of women, minorities, and older employees in the work-force and legislative rulings that now require organizations to ensure equal opportunity to women, minorities, older employees, and those challenged by a disability. There are individual and organizational approaches to managing diversity. Approaches at the indi-vidual level include learning and empathy; at the organizational level, testing, training, mentoring, and the use of alternative work schedules and work/family programs can be implemented.
Ethics is involved with moral issues and choices and deals with right and wrong behavior. A number of cultural (family, friends, neighbors, education, religion, and the media), organizational (ethical codes, role models, policies and practices, and reward and punishment systems), and external forces (political, legal, economic, and international developments) help determine ethical behavior. These influences, acting interdepen-dently, serve to help identify and shape ethical behavior in today’s organizations. There is increasing evidence of the positive impact that ethical behavior and corporate social responsibility programs have on “bottom-line” performance.
Ending with Meta-Analytic Research Findings
OB PRINCIPLE FOR EVIDENCE-BASED PRACTICE
Women and men currently differ in their perceptions of ethical business practices.
Meta-Analysis Results:
[66 samples; 20,000 participants; d = .22] On average, there is a 56 percent probability that women will perceive higher ethical standards than men in evaluating business prac-tices. Results of a moderator analysis revealed that gender differences are smaller for sam-ples of nonstudents than students. Moreover, gender differences in ethical perceptions also decline with age and work experience. Those who are older or who have considerable work experience display smaller gender differences in ethical perceptions.
Conclusion:
As women have become established in the workforce, not only is the workplace more diverse, but also ethical perceptions are changing. In particular, the ethical climate has emerged as an important managerial and societal concern. How this ethical climate is per-ceived by organizational participants, both male and female, can become important to deci-sion making and business practices. A growing body of evidence suggests that gender plays a role in perceptions of ethical climate. As the chapter points out, diverse input from soci-ety at large is affecting the cultural values of today’s organizations. Thus, through early socialization, stereotypes associated with social role norms or actual organizational expe-riences, men and women may develop or bring diverse interests, traits, and values into the workplace. This learning and development may lead to differences in ethical perceptions regarding issues such as pay equity, bribery, and sexual harassment. However, over time as
Chapter 2 Environmental Context: Globalization, Diversity, and Ethics 51
more men and women work together and assimilate into both the changing norms and cul-tures of both the overall society and organizations concerning working women, the current differences in ethical perceptions will undoubtedly decrease.
Source: Adapted from George R. Franke, Deborah F. Crown, and Deborah F. Spake, “Gender Differences in Ethical Perceptions of Business Practices,” Journal of Applied Psychology, Vol. 82, No., 1, 1997, pp. 920–934.
OB PRINCIPLE FOR EVIDENCE-BASED PRACTICE
Employee integrity tests can predict unethical and deviant workplace behaviors and performance.
Meta-Analysis Results:
[305 studies; 349,623 participants; d = .84 for overt tests; d = .43 for personality tests; and d = .75 when tests are related to performance] On average, there is a 72 percent probabil-ity that job applicants who score well on overt integrprobabil-ity tests will participate in less uneth-ical and/or deviant behaviors than those who score poorly. Moreover, on average, there is a 62 percent probability that job applicants who score well on personality-based integrity tests will participate in less unethical and/or deviant behaviors than those who score poorly. Finally, not only does the use of integrity tests help predict unethical and/or deviant behavior, but they can also help organizations predict better performers. On average, there is a 70 percent probability that employees who score well on integrity tests will outperform those who score poorly. Further analysis indicates the measurement method is a moderator.
That is, measures of deviant behavior can be divided into external and self-report (admis-sion) criteria. External criteria involve actual records of rule-breaking incidents, discipli-nary actions, dismissals for theft, etc. Self-report criteria include all admissions of theft, past illegal activities, and counterproductive behaviors. Interestingly, the validity of self-report measures was higher than that for external criteria—perhaps because not all thieves are caught or illegal activities detected.
Conclusion:
Because unethical and deviant behavior not only can impact the well-being of employees, but also can have a detrimental effect on individual and organizational performance, the study of ethics has been receiving increased attention in organizational behavior. One way for organizations to screen out potentially unethical individuals is to give job applicants some form of overt or personality-based integrity/honesty test. These tests are commonly used to predict employee participation in illegal activity (e.g., theft), unethical behavior, excessive absences, drug abuse, or workplace violence. Over the past decade, the evi-dence for integrity test predictive validities has been strong. Overt integrity tests are designed to directly assess attitudes regarding dishonest behaviors. Examples are asking test takers questions such as the following: “Should a person be fired if caught stealing $5?”
Personality-based integrity tests are designed to predict deviant behaviors at work by using personality measures such as reliability, conscientiousness, adjustment, trustwor-thiness, and sociability. The meta-analysis of research studies of both overt and personal-ity integrpersonal-ity tests can help organizations reduce unethical and/or deviant employee behavior as well as help them predict better performers.
Source: Adapted from Deniz S. Ones, Chockalingman Viswesvaran, and Frank L. Schmidt, “Comprehensive Meta-Analysis of Integrity Test Validities: Findings and Implications for Personnel Selection and Theories of Job Performance,” Journal of Applied Psychology Monograph, Vol., 78, No., 4, 1993, pp. 679–703.
52 Part One Environmental and Organizational Context
1. What is meant by and what are some examples of globalization?
2. What are some of the major reasons why diversity has become such an important dimen-sion of today’s organizations?
3. How can diversity be effectively managed? Offer suggestions at both the individual and organizational levels.
4. What is meant by ethics, and what types of factors influence ethical behavior?
5. What is meant by corporate social responsibility? How can and does it affect the
“bottom-line” of today’s organizations?
Ethical issues are very much at the forefront of organizational behavior in today’s envi-ronment. One controversial issue concerns monitoring employees. Technology has now made it easy and inexpensive for employers to closely monitor the behaviors of employ-ees. Visit the Web site http://www.legalethics.com for information on ethics and laws relevant to the current workplace. It may be helpful for you to test your knowledge and understanding of the ethical climate by going to httl://www.mhhe.com/business/
management/buildyourmanagementskills/ethics/exercise.html. Then, going from these, search to see if you can come up with other perspectives on employee moni-toring as an ethical issue.
1. Do you believe employers should be allowed to electronically monitor workers? Would you like to be monitored in this fashion?
2. Summarize the different perspectives that you found on the Internet. Be specific as to where you found this information.
3. Discuss other ethical issues that surfaced when looking at the suggested Web sites or others that you found.