Implementing Codes of Ethical Conduct: From Theory to Practice

1. A. Scott Carson, PhD Queen’s School of Business Implementing Codes of Ethical Conduct: From Theory to Practice

2. Names for codes Code of conduct Codes of ethical conduct Cannons of ethical conduct Ethical principles Code of business conduct Code of conduct and ethics Code of professional responsibility Global business citizenship

3. Who establishes a code? Business Company Industry Professional Global business Government codes Everything!: bloggers, internet, warriors, schools, universities, sports, administrators, ecotourism, law enforcement, health alliances, military, etc.

4. What codes do Codes generally seek to provide direction to employees, management and board members about how to conduct themselves with respect to Each other Stakeholders The organization, profession, etc. Codes usually contain a combination of ethical descriptions and directions, and non-ethical descriptions and procedural directives

5. Ethical content: Air Canada’s conflict of interest policy “A conflict of interest may arise in any situation in which an employee's other business or personal interests impair his or her judgment to act honestly and with integrity or otherwise conflict with the interests of the Company. Ethical Description All such conflicts should be avoided. The Company expects that no employee will knowingly place himself or herself in a position that would have the appearance of being in conflict with the interests of the Company.” Ethical Direction

6. Procedural content: Air Canada reporting In-Person Report Information about known or suspected violations of this Code or of any laws, rules, or regulations by any employee should be reported promptly and may be reported to the employee's immediate supervisor or the Corporate Secretary. Anonymous Reporting An employee may report anonymously any questionable financial reporting, or known or suspected cases of fraudulent or dishonest activities or conflicts of interest. In this regard, please consult Air Canada's Ethics Reporting Program which is available on ACaeronet under “My Work” and “Policies and Procedures”. Non Ethical Procedures

7. Code formation, revision and implementation cycle Identifying values Revising the Code Writing the Code Monitoring Performance Implementing the Code

8. Code formation, revision and implementation cycle Identifying values Revising the Code Writing the Code Monitoring Performance Implementing the Code

9. EthicsCentre: Codes Project CODES OF CONDUCT IN THE PRIVATE SECTOR: A REVIEW OF THE ACADEMIC LITERATURE FROM 1987 TO 2007 Scott Carson, Mark Baetz, Shelley McGill Respect the autonomy of the individual Identifying values • Incorporate universal values • Trust • Respect • Responsibility • Fairness • Citizenship • Caring Professionals should incorporate the values of their practice Incorporate the organization’s principles and values Respect and incorporate the values of the country

10. Structure • Reflect broad socio-economic concerns • Make priorities clear • More emphasis on spirit than letter of the law • Issue general guidelines • Ensure relevance • Ensure usefulness • Country specific • Content • Fair reporting • Protection for whistle blowers • Confidentiality • Emphasis on public interest Writing the Code • Language • Simple language • Minimize the negative • Be future oriented • Process • Teamwork in creating the code • Diversity on the team • Top level support • Assigned responsibilities

11. International codes: Environmental • training • Culture • Politics • Economic environment Broadly acceptable Widely publicized • Implementing as • Inculcating • Re-enforcing • Measuring Implementing the Code

12. Revising the Code Measurement Verification Monitoring Performance Continuous

13. Implementation Identifying values Revising the Code Writing the Code Implement the Code Monitoring Performance

14. Typical implementation approach: Teaching rules Teaching the content of the code Workshops On-line program Orientation Seminars Ethics officer support Follow-up

15. Implementation as Code Education: A preliminary note Implementing a code cannot be as simple as learning rules because Codes in themselves do not provide adequate context to enable a full understanding of the rules themselves The code does not provide sufficient context to develop the overarching rules and principles necessary for accessing the ethical validity of code provisions Implementing a code should be a broader process involving stakeholders in other parts of the codes formation and implementation cycle to promote a culture of integrity A crucial piece of code implementation is understanding the ‘regulatory regime’ of which a code is a part Overall corporate strategy which the ‘regulatory regime’ and code impacts

16. Following a code implies an underlying theory of ‘rationality’: Theoretical disputes Some researchers maintain that codes are sets of rules that employees and others follow without rational reflection Rules are non rational because of rote procedures (Schwartz, 2000) Moral conduct (hence acting in accordance with codes) is mainly acting on intuition (Sonenshein, 2007) not rational reflection A significant part of moral conduct is acting virtuously, which by its nature is instantaneous not a matter of reflection (Solomon, 1993) If rules are followed by rote, they are not only non rational, they violate the moral autonomy of the individual and reflect a political control mechanism by management over employees (Schwartz, 2000)

17. Underlying theories of ‘rationality’ in ethics: the potential irrelevancy of rules Procedural Models Deductive reasoning procedure Step 1: Consider the situation Step 2: Generate alternatives Step 3: Apply a principle or rule in making a judgment Stage theory (e.g., Kohlberg, Piaget) Invariant stages of human moral development from simple rule following at the beginning to application of social principles at end Person-situation model -- Treviño (1986): Moral responsiveness Individual factors: Moral responsiveness: ego strength, proximity, control Organizational factors: culture, characteristics of job

18. Rationality models continued Psychological Process Models Issue-contingent model (Jones, 1981) Characteristics of the issue itself Intensity: benefits/harms, social consensus, probability of consequences, time between action and consequences, feeling of nearness, concentration of affect Intensity correlates with moral issue recognition Sensemaking-Intuitionist Model (SIM) (Sonenshein, 2007) A critical response to ‘rationalist’ models above Phase 1: Issue construction: social and personal influences Phase 2: Intuitive judgments based on experience and social pressures Phase 3: Post facto explanation and justification

19. Rationality models continued Philosophical Models Non-rationalist – Virtue ethics (Solomon, 1993) Business virtues: honesty, openness, integrity, collegiality Spontaneous, no thought, no deliberation Not the application of rules Not rule/principles governed because no clear universals Non-classical rationality Model (Deinhart, 1995) Classical rationalist theory: necessary, universal, rule-guided Brown’s theory: defensible, reliable non rule-guided judgments Body of background knowledge Relevant information about the case at hand

20. Rationality models continued Classical rationality (R.M. Hare, 1952/72) Learning something (or to do something) involves learning a generalizable rule or principle Moral learning is necessarily learning of principles/rules – learning to do moral acts of a certain kind Could not make a moral judgment without Subsuming it under a principle Indentifying the kind of judgment or act that it is What is means for something to be a rational decision Understand the context of the situation and why it is a moral issue Understand alternatives and their consequences Apply a moral rule or principle to the alternatives in order to select the best moral decision or action

21. Discussion and critique The ‘deductive procedure’, ‘person-situation’ and ‘issue contingent’ models are rule-governed either because they prescribe rule-following processes or presuppose rules in making judgments The ‘sensemaking-intuition’, virtue ethics and non-classical rationality models reject rules as necessary for ethical decision making (SIM is mixed) Hare’s classical rationality model does not prescribe any decision making procedure or psychological process. Only necessary conditions for something to count as a rational ethical decision: Context alternatives/consequences Principle or rule

22. Discussion continued Hare’s position is compatible with rule-governed models and accommodates SIM objections to them Subjectivity and situation construction Uncertainty and equivocality No rigorous time sequence deliberation SIM collapses into rule-governed models Becoming experienced starts with rule-governed actions/judgments Situations with less uncertainty and equivocality can be rule-governed SIM’s final stage is explanation/justification which is a rule-governed condition

23. Discussion continued Virtue ethics and non-classical rationality are both vulnerable to claim that without some form of generalizable rule or principle, there would be no way of telling what kind of act or situation is being considered. Everything is an instance of something more general This is compatible with creating new rules which Dienhart/Brown contend Rules are logically necessary to moral decision making and behavior Codes provide at least some of the rules in organizational life

24. A moral challenge: Respect for persons? Codes of conduct do not respect the moral autonomy of the person (Schwartz, 2000) No agreement by employees of ethical standing of rules: devoid of ethical content Not an outcome of a process of ethical evaluation Management tool of control, paternalism, indoctrination, organizational protection Codes constrain ethical independence Codes alienate employee from his or her own morality

25. Rebuttal of the moral challenge The non-rational following of rules thesis reflects a simple misunderstanding of codes Contain some procedural rules that require little reflection but many principles in codes require in-depth reflection Even simple rules require the application of moral principles and rules in order to establish their moral validity (following Hare’s account) How some organizations implement codes is not necessarily how they should be implemented, especially as regards the active involvement of employees and other stakeholders in code formation, implementation and revision (more detail later)

26. Implementation, education and the Regulatory Regime (RR) Guiding corporate conduct in the marketplace Legislation: corporate, tax, workplace health and safety, bribery, securities dealing, banking, insurance Regulations and regulatory bodies to implement legislation: securities commissions, stock exchanges

27. RR continued Self-regulatory bodies: investment dealers, public accountants, advertising, engineers, lawyers Rules internal to the organization: byelaws, policies (employment, harassment, whistle blowing, safety, environmental) Informal policies: circulated by memo, stated verbally Principles as ‘rules’: mission, vision, values In aggregate, all of these directives constitute the ‘regulatory regime’

28. Codes and the RR Codes are imbedded in the RR The RR guides conduct in an organization How to behave As a context for the organization’s pursuit of business objectives

29. RR and strategy Organizational strategies reflect a further layer of directives The RR is both a decision making framework and catalyst for strategy Framework: Appropriateness of proposed strategies and actions Catalyst: Suggests strategies to promote parts of the RR (e.g., CSR strategies)

30. Regulatory regime and strategy Mission, Vision, Values Regulatory Regime Shared Principles/Values Code of Ethics Legislation, Regulation Organizational Policies CSR Strategy CorporateStrategies Business Strategies Action Plans

31. Internal inter-connectedness Codes can contain reference to policies Principles and norms of the company can be imbedded in the code Codes sometimes restate required legal compliance

32. Two approaches to ethics in business Compliance culture Reactive: externally and internally Rule-guided behaviour Legislation Regulations Company policies Conforming to expectations Codes are compatible with a compliance culture

33. Approaches continued Culture of integrity: Robust ethical climate Proactive Broad principles Aspirations Codes to establish expectations Unwritten norms Stories, symbols Expectation that members of the organization will always try to act with integrity

34. Implementation and the culture of integrity Identifying values Revising the Code Writing the Code Organizational Stakeholders Monitoring Performance Implement the Code

35. The culture of integrity and involving stakeholders Direct involvement of stakeholders, especially employees Identifying values Writing the code Revising the code, which includes revising values identification Culture of integrity requires greater level of understanding to be effective Good decision makers are able to draw sound conclusions from what the RR makes available Alternative courses of action which the RR helps to understand Ethical principles which the RR provides in the Code Outcomes of decision making drawn in part from the RR

36. Organizational strategy to promote integrity Increasingly comprehensive grasp of RR combined with improving ability to employ ethical principles in judgments Rudimentary knowledge of the code and modest Understanding of the RR Sophisticated knowledge of the RR and relationship to strategy. Adept at using ethical principles to make decisions.

37. Integrity and gradations of knowledge • Advanced Decision Making • Extensive knowledge of RR • Sophisticated grasp of • ethical principles • Ability to apply principles • to knowledge of RR in decision making • Three tasks for ‘code education’ • Promote learning of the RR • Reinforcing the principles in the code • Developing ethical decision making ability • using principles and the RR Gradations of improvement as knowledge of the RR becomes broader and deeper. • Basic Decision Making • Knowledge of code • content • Some knowledge of • ethical principles • Constrained ability to • apply principles in • decision making

38. Implementing codes as ethics education Education – not just in the specific provisions of the code, but in the RR in which it is imbedded Five principles of code education Highest quality of learning and development in each employee Experience, educational background and role in the organization should guide depth of required understanding in the RR.

39. Ethics education continued Education in the RR should not be confining to career advancement and new responsibilities Go beyond simply learning principles and the RR. Should encourage critical assessment Education should be full and complete: ongoing over time. Too much to absorb all at once