The meaning of business ethics in corporate governance and its leadership in a global context

Ethics involves the notion of morals however they’re different but interrelated concepts (Ethics and morality, n.d.; Tallman 2009).  Morals are the individual establishment between right and wrong whereas ethics occurs in the context of groups of individuals who build shared values and standards creating a culture in which decisions influencing the causal relationship of right and wrong exist (Clawson 2006 ; Hrebiniak 2005 ; Klebe Treviño, Pincus Hartman & Brown 2000 ; Northouse 2009 ; Schein 2004).  There’s a philosophical question of whether businesses have ethics due to the notion that business is apart from society (Longstaff 1991).  However, individual people who constitute the business are part of multiple collectives defining the wider societal and cultural values environment in which ethics resides and the business operates (Huntsman 2008 ; Longstaff 1991).

The challenge with ethics in business is, goal posts constantly move through society’s evolution and redefinition of ethical standards to which businesses adhere (Jukes 2005 ; Longstaff 1991).  By looking into societies mirror a board wishing to behave ethically can interpret the system of ethics in which it operates (Schein 2004), however this becomes more complicated in an international and globalising setting (Mead & Andrews 2009).  Businesses operating in foreign countries face challenges when dealing with societies that find unethical behaviour of the ‘home’ culture acceptable (Schein 2004 ; Tallman 2009).  This complexity is amplified by the shifting demographics of migrant workers with differing cultural and religious values, greater access to information and more heterogeneous workforces particularly in western nations (Mead & Andrews 2009).  It’s also complicated at an individual level by unconscious biases that board members may not be aware of (Banaji, Bazerman & Chugh 2003).

There’s agreement in traits and principles that individual board members must have around which values are built in order for a system of ethical leadership to flourish; courage, respect, honesty, integrity, trust, justice, service, accountability, transparency, social responsibility and community (Clawson 2006 ; Covey 2009 ; Klebe Treviño, Pincus Hartman & Brown 2000 ; Northouse 2009 ; Wilson 2011).  But in corporate governance who is responsible for developing a culture in which ethical leadership (Northouse 2009) can exist?  Literature suggests that the CEO is responsible acting as the chief ethics officer (Klebe Treviño, Pincus Hartman & Brown 2000) however others keep more general by referring to leader(s) (Clawson 2006 ; Northouse 2009 ; Schein 2004).  It would follow that the board as a whole is responsible for establishing codified ethical standards however it’s been found that most companies don’t audit or enforce their ethical codes (Jukes 2005) meaning they will be reactive to a continually evolving ethical context.  To rectify this, constructing appropriate systems enforcing the creation of ethical values can begin with building, monitoring and evaluating appropriate reward systems (Banaji, Bazerman & Chugh 2003 ; Bazerman & Tenbrunsel 2011).

From a leadership perspective a board behaving ethically needs to decide whether it will proactively influence ethical change through shaping society (Johnson, Scholes & Whittington 2008) or just have a good reputation by consistently acting in ways congruent with its projected values and identity (Fleisher & Bensoussan 2007).  Unquestioningly following the mantra of that’s the way we do (always done) things around here isn’t ethical leadership (Schein 2004) with no place in the boardroom (Kiel & Nicholson 2003).  Leadership is having the courage to make difficult decisions (Cherry 2007) based on personal values of what will or won’t be done (Heifetz, Grashow & Linksy 2009) through either teleological or deontological (Wilson 2011) decision making.  This ensures the rules and laws of the game continue to be trusted (Handy 2002) and consequentially enables the legitimisation given by society to continue to operate (Porter & Kramer 2006) meaning a company remains part of society rather than apart (Longstaff 1991).

List of References
Banaji, MR, Bazerman, MH & Chugh, D 2003, ‘How (Un)Ethical Are You?’, Harvard Business Review, vol. 81, no. 12, pp. 56–64, viewed 11 October 2010.

Bazerman, MH & Tenbrunsel, AE 2011, ‘Ethical Breakdowns’, Harvard Business Review, vol. 89, no. 4, pp. 58-65, viewed 4 April 2011.

Cherry, N 2007, Cultivating Leadership Practice, Swinburne University of Technology, Melbourne.

Clawson, JG 2006, Level Three Leadership: getting below the surface, 4th edn., Pearson Prentice Hall, New Jersey.

Covey, S 2009, Principle Centred Leadership [Kindle Edition], Rosetta Books, Amazon Digital Services, New York.

Ethics and morality,  n.d., St James Ethics Centre, viewed 4 April 2011, <http://www.ethics.org.au/content/ethics-and-morality>.

Fleisher, CS & Bensoussan, BE 2007, Business and Competitive Analysis: Effective Application of New and Classic Methods [Kindle Edition], Pearson Education, Amazon Digital Services, Upper Saddle River, New Jersey.

Handy, C 2002, ‘What’s a Business For?’, Harvard Business Review, vol. 80, no. 12, pp. 49-56, viewed 11 March 2011.

Heifetz, R, Grashow, A & Linksy, M 2009, The Practice of Adaptive Leadership [Kindle Edition], Harvard Business Press, Boston, Massachusetts, Amazon Digital Services.

Hrebiniak, LG 2005, Making Strategy Work [Kindle Edition], Wharton School Publishing, Amazon Digital Services, New Jersey.

Huntsman, JM 2008, Winners Never Cheat [Kindle Edition], Wharton School Publishing, Amazon Digital Services, New Jersey.

Johnson, G, Scholes, K & Whittington, R 2008, Exploring Corporate Strategy: Text and Cases, 8 edn., Pearson Education Limited, Essex, England.

Jukes, D 2005, A view from the top: Business ethics and leadership, viewed 7 April 2011, <www.wa.ipaa.org.au/download.php?id=96>.

Kiel, G & Nicholson, G 2003, Boards That Work: A new guide for directors, McGraw-Hill, North Ryde, NSW, Australia.

Klebe Treviño, L, Pincus Hartman, L & Brown, M 2000, ‘Moral person and moral manager: how executives develop a reputation for ethical leadership’, California Management Review, vol. 42, no. 4, pp. 128–142, viewed 11 October 2010.

Longstaff, S 1991, Business ethics in Australia, viewed 7 April 2011, <http://www.ethics.org.au/ethics-articles/business-ethics-australia>.

Mead, R & Andrews, TG 2009, International Management, 4 edn., John Wiley & Sons Ltd, West Sussex, England.

Northouse, PG 2009, Leadership: Theory and Practice [Kindle Edition], 5 edn., Sage Publications Inc, Thousand Oaks, California, Amazon Digital Services.

Porter, ME & Kramer, MR 2006, ‘Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility’, Harvard Business Review, vol. 84, no. 12, pp. 78-92, viewed 13 December 2009.

Schein, EH 2004, Organizational Culture and Leadership [Kindle Edition], 3 edn., Jossey-Bass A Wiley Imprint, San Francisco, Amazon Digital Services.

Tallman, S 2009, Global Strategy [Kindle Edition], John-Wiley & Sons, West Sussex, United Kingdom, Amazon Digital Services.

Wilson, J 2011, Lecture 5: Reputation and Risk, HBO681 Corporate Governance in a Global Context, Swinburne University of Technology, 30 March 2011.

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One Response to The meaning of business ethics in corporate governance and its leadership in a global context

  1. Richard,

    Excellent blog on an interesting and challenging subject.

    I have worked in a couple of global organisations face the situation where their home country values are different from their host country values.

    The best model that I saw was when one of these companies had fairly lose corporate (global) definitions and then more detailed and tailored ones that complied with the particular host country’s laws, regulation and culture.

    The managing board for that particular country then set the standards for that particular country for the CEO to implement.

    David

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