Culture and Ethics Crispin Farbrother

1. Culture and Ethics Crispin Farbrother

2. Objectives • Students are to understand and evaluate ethical matters within business and the business environment. • Students are to apply basic ethical philosophies to strategic management. • Students are to be able to evaluate the role of culture in an organisation’s ethical purpose or stance. • Students are to be able to apply corporate governance to organisations.

3. Corporate governance • Whom should the organisation serve? • How should purposes be determined? • Business ethics • Which purposes should be prioritised? • Why? • Organisational purposes • Mission • Objectives • Cultural context • Which purposes are prioritised? • Why? • Stakeholders • Whom does the organisation serve? Exhibit 5.1 Influences on organisational purposes

4. Reports received: Beneficiaries Limited reports Trustees Limited investment performance reports Investment managers Accounts Analysts’ reports Company briefings Board Budgets/qualitative reporting Executive directors Budgets/qualitative reporting Senior executives Budgets/other operating reports Managers Exhibit 5.2 The chain of corporate governance: typical reporting structure Source: David Pitt-Watson, Braxton Associates. Reproduced with permission

5. ETHICAL STANCE DRIVERSOFSTRATEGY Exhibit 5.13 The role of mission statements

6. Some common conflicts of expectations • Growth vs profitability • Short term vs investment • Control vs professional managers • Ownership vs funding • Ownership vs accountability • Efficiency vs jobs • Mass appeal vs quality Exhibit 5.3

7. ANGLO-SAXON MODEL (USA AND UK) Strengths Dynamic market orientation Fluid capital Internationalisation possible EUROPEAN MODEL (GERMANY) Strengths Long-term industrial strategy Very stable capital Strong governance procedures ASIAN MODEL (JAPAN) Strengths Long-term industrial strategy Stable capital Overseas investments Weaknesses Volatile instability Short-termism Inadequate governance structures Weaknesses Internationalisation difficult Vulnerable to global market for companies Weaknesses Growth of merger activity Growth of institutional investor activism Growth of financial speculation Secretive, sometimes corrupt, procedures Exhibit 5.4 A critique of some different corporate governance systems Source: T. Clarke and E. Monkhouse (eds), Rethinking the Company, Financial Times/Pitman, 1994. Reproduced with permission

8. THE ROLE OF THE BOARD (1) • Anglo-Saxon (UK and US) • single tier board • executives and non-executives • supervises managers • sub-committees • European (Germany) • two tier board • upper tier supervises lower tier • lower tier managers • co-determination (shareholders/employees)

9. THE ROLE OF THE BOARD (2) • Asia (Japan) • mainly executives • a tier in management hierarchy • cultural expectations of directors

10. Activity Read illustration 5.1 page 206, Johnson & Scholes, 1999. Exploring Corporate Strategy 5th Edition. Hemel Hempstead: Prentice Hall. Utilising Exhibit 5.2 answer the two questions set.

11. Business ethics Is it an oxymoron?

12. “The ethical stance is the extent to which an organisation will exceed its minimum obligation to stakeholders.” Johnson & Scholes, 1999,p225

13. Moral Philosophies • Ideas of right and wrong • A system of values by which people live • In particular refers to principles or rules that one uses to decide right from wrong "They present guidelines for determining how conflicts in human interests are to be settled and for optimising mutual benefit of people living together in groups" (Ferrell & Freadrich, 1997) • There is no one moral philosophy accepted by everyone. • There are many philosophies and each one is complex. We will only look at the basic concepts.

14. Moral Philosophies • Teleology (measure by consequences) • Two teleological philosophies are: egoism - • maximise an individual's self interest. Utilitarianism - • greatest good for the greatest number of people. Greatest total utility.

15. Deontology • "Focuses on the preservation of individual rights and on the intentions associated with a particular behaviour rather than on its consequences." • Act in a way that you feel comfortable with everyone in the world seeing and be it that your rational is suitable to become a universal principle. • Belief in the means rather than the ends. • Split into 1) rule deontologists and 2)act deontologists. 1) The golden rule 2) Equity, fairness and impartiality

16. Relativist • "Evaluates ethicalness subjectively on the basis of individual and group experiences." (Ferrell) • Group consensus (however circumstances change) Group could be • employees, • peers, • suppliers, • customers, • community.

17. Short-term shareholder interests 1 Longer-term shareholder interests 2 Multiple stakeholder obligations 3 Shaper of society 4 Exhibit 5.7 Four possible ethical stances

18. Should organisations be responsible for ... INTERNAL ASPECTS Employee welfare ... providing medical care, assistance with morgages, extended sickness leave, assistance for dependants, etc.? Working conditions ... enhancing working surroundings, social and sporting clubs, above minimum safety standards, etc.? Job design ... designing jobs to the increased satisfaction of workers rather than for economic efficiency? Exhibit 5.8a Some questions of corporate social responsibility

19. Should organisations be responsible for ... EXTERNAL ASPECTS Green issues ... reducing pollution below legal standards if competitors are not doing so? ... energy conservation? Products ... danger arising from the careless use of product by consumers? Markets and marketing ... deciding not to sell in some markets? ... advertising standards? Suppliers ... ‘fair’ terms of trade? ... blacklisting suppliers? Employment ... positive discrimination in favour of minorities? ... maintaining jobs? Community activity ... sponsoring local events and supporting local good works? Exhibit 5.8b Some questions of corporate social responsibility

20. Seminar Preparation • Be prepared to answer the receding questions. • Ensure that you can support your views. • Can you equate this with the moral philosophies?

21. Preparation & Reading • Much is said about culture in the strategy books. • You are to read around the areas covered. • Here are a few general pointers and questions that are raised when discussing culture.

22. Values Beliefs Paradigm Taken-for-granted assumptions Exhibit 5.10 Culture in three layers Source: Adapted from E, Schein, Organisation Culture and Leadership, Jossey-Bass, 1985

23. Stories • What core beliefs do stories reflect? • How pervasive are these beliefs (through levels)? • Do stories relate to: • strengths or weaknesses? • successes or failures? • conformity or mavericks? • Who are the heroes and villains? • What norms do the mavericks deviate from? Exhibit 5.11a Analysing the cultural web: some useful questions

24. Routines and rituals • Which routines are emphasised? • Which would look odd if changed? • What behaviour do routines encourage? • What are the key rituals? • What core beliefs do they reflect? • What do training programmes emphasise? • How easy are rituals/routines to change? Exhibit 5.11b Analysing the cultural web: some useful questions

25. Organisational structure • How mechanistic/organic are the structures? • How flat/hierarchical are the structures? • How formal/informal are the structures? • Do structures encourage collaboration or competition? • What type of power structures do they support? • Is the organisation centralised or decentralised? The structure and its influence on ethics: some useful questions

26. Control systems • What is most closely monitored/controlled? • Is emphasis on reward or punishment? • Are controls related to history or current strategies? • Are there many/few controls?

27. Power structures • What are the core beliefs of the leadership? • How strongly held are these beliefs (idealists or pragmatists)? • How is power distributed in the organisation? • Where are the main blockages to change?

28. Overall • What is the dominant culture (defender, prospector, analyser)? • How easy is this to change? Exhibit 5.11g Analysing the cultural web: some useful questions

29. Exhibit 5.12 Characterising culture Source: Adapted from R.E. Miles and C.C. Snow, Organisational Strategy, Structure and Process. McGraw-Hill, 1978

30. The End But your beginning