Ethics or Profit?

1. Ethics or Profit? Dr. Benito L. Teehankee Sen. Benigno Aquino Jr associate professor in business and governance Ramon V. del Rosario Sr Graduate School of Business De La Salle University Best Practices in Corporate Ethics BusinessWorld October 29, 2008

2. Outline • Need for promoting business ethics for business professionals • Basic purpose of business: Creating trust and value for stakeholders • Principles for ethical analysis • Common issues • Action steps for ethical leadership and moral business creativity

3. Recent reputation of business in society: Some perceptions • Greed is unchecked and businesses will do whatever it takes to maximize profit • The damage to society of unethical business practice is unlimited: • health hazards (e.g., melamine) • financial/pension losses (e.g., Enron, sub-prime) • job losses (e.g., inappropriate plant shutdowns) • environmental damage (e.g. Marcopper, Exxon Valez) • human rights violations (e.g., contractualization) • assaults on community decency (e.g., nudity in billboards)

4. Characteristics of a Profession • Professional • Extensive training and certified competence based on a body of knowledge for work autonomy • Adherence to professional values and a code of ethics • Part of a community with a common commitment to serving society COMPETENCE + CHARACTER Adapted from “What is a Profession?” byMichael Bayles, 1989

5. Ethics and the Professional • Ethical Awareness: “Issue detector” • Ethical Commitment: Vision-mission for public service (e.g., health) • Ethical Competence: Reasoning and analysis (moral principle/s + facts=moral judgment) • Ethical Leadership: Ability to influence subordinates and peers towards ethical behavior COMPETENCE + CHARACTER

6. Ethical Decision-making ISSUE AWARENESS ANALYSIS JUDGMENT ACTION COMPETENCE + CHARACTER

7. The Professional Manager as Ethical Lighthouse

8. Government Investors Board Customers Oversight Performanceaccountability The Company and its Main Stakeholders Creditors Funds Capitalcommitment Legal license,infrastructure support & law enforcement Taxes, compliance &cooperation Fair & attractive returns Repayment & returns Value through products and services Managers Suppliers Products & services for human development Employees Purchase & patronage Fair compensationand developmentsupport Community meeting basic needs of members towards integral human development Trustworthyservice &behavior Community & Society Company Trust Current Resources Renewal Environment Sustenance Future Renewal

9. Convergent Stakeholder Theory • Managerial Maxim: Managers should strive to create and maintain mutually trusting and cooperative relationships with corporate stakeholders • Relationships characterized by mutual trust and cooperation are morally desirable AND • Firms will achieve competitive advantage over those who do not have such. (Jones and Wicks, 1999)

10. Government Investors Board Customers Oversight Performanceaccountability The Company and Bias for Investor Stakeholders Creditors Funds Excessive unsustatinable returns Capitalcommitment Tax Evasion Legal license,infrastructure support & law enforcement Taxes, compliance &cooperation Lack of transparency Repayment & returns Value through products and services Unsafe or Unhealthy products Managers Suppliers Violations ofJob Security ; No work-life balance Products & services for human development Delayed payments Employees Purchase & patronage Fair compensationand developmentsupport Community meeting basic needs of members towards integral human development Trustworthyservice &behavior Nudity in publicadvertising Community & Society Company Waste dumping Trust Current Resources Renewal Environment Sustenance Future Renewal

11. Foundations of Principled Corporate Practice: The Philippine Constitution ARTICLE XII: NATIONAL ECONOMY AND PATRIMONY Section 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justiceand to intervene when the common good so demands.

12. Foundations of Principled Corporate Practice: The Corporation Code of 1980 “The … Code seeks to establish a new concept of business corporations so that they are not merely entities established for private gain but effective partners of the National Government in spreading the benefits of capitalismfor the social and economic development of the nation.”

13. The Ethical Star: The Dynamics of Ethical Principles Human dignity & the common good (Dangal ng tao at Kabutihan ng lahat) Human Rights (Karapatan pang-tao) Justice (Katarungan) Virtue (Kabutihan ng Pagka-tao) The General Welfare – Utilitarianism (Kapakanan ng nakararami) Care (Kalinga)

14. HUMAN DIGNITY & COMMON GOOD GENERAL WELFARE Utilitarianism Will the act lead to a fair distribution of benefits and burdens? If it will cause inequality, will it improve the situation of the least advantaged persons? JUSTICE Does the act promote dignity and allow total human development for everyone? Who benefits from the act? Who are burdened? Does the act maximize the total net benefit to everyone concerned (stakeholders)? RIGHTS Does the act respect the moral rights of everyone concerned? Does it treateveryone as persons and not merely as things? CARE Does the act show proper care to people we have special relationships with? Will it earn the trust of people we value? Will the act help me develop my character? Will it make me a better person? VIRTUE Key principles and questions about the ethics of an act Adapted by B. Teehankee from Business Ethics by Manuel Velasquez

15. Organization with mis-aligned values Highly committed; aligned member Ethical Vision Completely misaligned, non-compliant member Less committed; Less aligned member

16. Organization with aligned values Highly committed; aligned leader Ethical Vision Less committed; aligned member

17. How Leaders Help Shape Organizational Values • How leaders spend their time • The questions leaders ask • Leaders’ reactions to critical incidents • What leaders reward Adapted from Edgar Schein Organizational Culture and Leadership

18. Framework for Understanding Organizational Ethical Decision Making O.C. Ferrell, Business Ethics: New Challenges for Business Schools and Corporate Leaders, 2005

19. Ethical Leadership Process Commit to and share vision of ethical organization with leadershipteam and members Role model and reinforceethical principlesthrough personalattention Be vigilantto detectethical issuesearly Get thefacts Analyze theissue using principles Make an ethical judgment Actappropriately Follow-throughand monitor

20. A Process Framework for Ethical Leadership • Commit to and share vision of ethical organization with leadership team and members: Explain, give examples, inspire • Role model and reinforce ethical principles through personal attention: Walk your talk. Praise others. • Be vigilant of possible ethical issues (early-warning radar): Is there a possible ethical issue? What is the subject of the issue: a behavior, practice, policy, institution, a combination, etc? Who should be responsible for the situation/s? Am I responsible? How? Who else? Who should I involve/consult? • Get the facts: What can I/we know about the subject? Who? What? When? Where? Why? How? Resist prejudging the situation and never prejudge persons!

21. A Process Framework for Ethical Leadership • Analyze using ethical principles: How can I apply principles of human dignity and the common good, rights, justice, general welfare (utilitarianism), care and virtue. • Make an ethical judgment: What is my judgment on the subject? Is it ethical? Potentially unethical? Unethical? • Act appropriately: What should I do, immediately, short-medium-long term? Not act? Communicate? Dialogue? Intervene? • Follow-through and monitor: What are the effects of my action/inaction? Is the issue resolved? Should I make any adjustments?

22. Personal impact of ethical lapses: Andrew Fastow on trialThe former CFO of Enron Corporation “I was greedy, yes.” “When you misrepresent the nature of your company, when you artificially inflate earnings, when you improperly hide losses, when you do things like that to cause your stock price to go up, that is stealing.” “I’ve destroyed my life. All I can do is ask forgiveness and be the best person I can be.” Fortune, April 3 2006

23. Enron Vice-Chairman Clifford Baxter: A timeline • Honors from New York University, MBA from Columbia University (1987, valedictorian) • Joined Enron in 1991 • Chief strategy officer for Enron Corp. in June 2000 • Vice chairman in October 2000, . • Complained to CEO Skilling and others about the inappropriateness of Enron transactions • In May 2001, resigned from the company but stayed on as a consultant, citing family reasons. • He was also one of 29 former and current Enron executives and board members named as defendants in a federal lawsuit. Plaintiffs lawyers said the executives made $1.1 billion by selling Enron stock between October 1998 and November 2001. • Sold 577,436 shares for $35.2 million. • Jan. 25, 2002 Former Enron Vice Chairman J. Clifford Baxter is found dead in his car in a Houston suburb. Texas police say the cause of death is suicide. Baxter was 43 and is survived by his wife and two children. Enron web site and other online sources

24. Clifford Baxter Suicide Note "I am so sorry for this. I feel I just can't go on. I have always tried to do the right thing but where there was once great pride now it's gone. I love you and the children so much. I just can't be any good to you or myself. The pain is overwhelming. Please try to forgive me." Cliff."

27. Ethics AND Profits: The Johnson & Johnson Tylenol Case • In 1982, seven people died in the Chicago area from cyanide-laced Extra-Strength Tylenol capsules. • Though it was not responsible in any way for the contamination, the company was guided by its self-declared duty to protect the safety of consumers to quickly recall 30 million bottles of Tylenol from store shelves nationwide and to notify 500,000 doctors and hospitals about the contamination incidents. • The recall cost the company $50 million and yet Tylenol recovered its market share within one year after releasing an improved contamination-resistant design for the drug. The company showed that a corporation who pursues ethical principles could achieve financial success.

28. How did I live today? • Did I practice any virtues (e.g., integrity, honesty, compassion)? • Did I do more good than harm? • Did I treat others with dignity and respect? • Was I fair and just? • Was my community better because I was in it? Was I better because I was in my community? Thomas Shanks, S.J., Ph.D., Markkula Center for Applied Ethics

29. Conclusion • Ethics OR Profit is a FALSE dilemma • The duty of the manager is to creatively achieve Ethics AND Profit • The need to do this is more urgent now more than ever