Chapter Three

Organizational and Managerial Ethics

3.1. Ethical Management
Ethical management balances the different responsibilities of modern business organizations.
The following are the main responsibilities that we should practice as a business organization.
• Profit: All companies are responsible to make a profit in order to survive and fulfill their
other obligations.
• People: This includes employees, customers, shareholders, and the community.
• Environment: Sustainability and the preservation of resources is a growing responsibility
for businesses.
• Principles: The ethics that govern the organization will help the company to act ethically
in every area.
3.2. Subordinates’ ethical issues
Once hired, an employee certainly can claim rights such as:
• The right to a safe and healthy work environment
• The right to job security and due process in firing and promoting
• The right to privacy
• The right to compensation for injury
• The right to participation or voice in matters affecting workers
• The right to equal treatment without regard to race or gender
• The right to pension protection
• The rights to collective bargaining such as those established by the National Labor
Relations Board
• The right to be free from harassment
• The right to a living wage.
We also confront ethical issues at the organizational level in our roles as managers or employees.
Certainly, many of these issues are similar to those we face personally. However, these issues
may carry consequences for the company’s reputation and success in the community and also for
the kind of ethical environment or culture that will prevail on a day-to-day basis at the office.
The kinds of issues posed at the organizational level might include:

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 • Should I set high production goals for my subordinates to benefit the organization, even
though I know it may cause them to cut corners to achieve such goals?
• Should I overlook the wrongdoings of my colleagues and subordinates in the interest of
harmony in the company?
• Should I authorize a subordinate to violate company policy so that we can close the deal
and both be rewarded?
• Should I make this product safer than I’m required to by law, because I know the legal
standard is grossly inadequate?
• Should I accept this gift or bribe that is being given to me to close a big deal for the firm?
• What kinds of values am I communicating to my peers and subordinates by my behavior?
3.3 Ethical Safeguards
Ethical safeguards need to be in place to ensure ethical behavior. Safeguards do more than
protect the company; they help bring in work. Ethical safeguard include:
 Codes of ethics (codes of ethics and codes of conduct)
 Employee training
 Ethics audits
3.3.1 Developing a Code of Ethics
Code of Ethics and Code of Conduct
A Code of Ethics and a Code of Conduct are two unique documents. A Code of Ethics describes
broad ethical aspirations. A Code of Conduct describes acceptable behaviors for specific
situations that are likely to arise. A Code of Ethics is like the Ten Commandments, a few general
principles to guide behavior that could fit on one piece of paper or a business card. The general
principles embodied in a Code of Ethics— such as respecting all owners, customers, employees,
suppliers, community members, and the natural environment—represent aspirations. These
principles describe the kind of people we want to be, such as a person who respects everybody.
A Code of Conduct provides substance to the Code of Ethics and is usually several pages long. A
Code of Conduct applies the Code of Ethics to a host of relevant situations. One principle in the
Code of Ethics might state that all employees will obey the law; a Code of Conduct might list
several specific laws relevant to organizational operations that employees will obey.

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Codes of Ethics and Conduct demonstrate managerial concern about ethics, convey a particular
set of values to all employees, and have an impact on employee behavior. They provide
employees with clear and consistent moral guidance.
Code of Ethics Content
A Code of Ethics, sometimes referred to as a Values Statement, expresses the principles that
define an organization’s ideal moral essence. Keep the language simple and avoid legalese or
professional jargon. The code should be easy to understand and inspirational, something that
unites employees regardless of their particular religion, ethnicity, gender, or geographical
location.
The tone of an ethics code is very important. Providing employees with a list of things they
should not do feels oppressive rather than inspirational. A Code of Ethics should be affirmative,
stating how people should act. Declaring that employees will always tell the truth, rather than
will not lie, creates positive expectations. An extensive review of corporate Codes of Ethics,
global Codes of Ethics, and the business ethics literature found the following ethical principles:
 Trustworthiness  Transparency  Exercising
 Respect  Impartiality leadership
 Responsibility  Exercising  Accountability
 Fairness legitimate  Honesty
 Caring authority  Integrity
 Citizenship  Respecting the law  loyalty
 Confidentiality
Code of Conduct Content
A Code of Conduct expands on the moral principles embodied in a Code of Ethics. A Code of
Ethics principle such as ‘‘we will treat everyone fairly,’’ for example, can be clarified in a Code
of Conduct as ‘‘All information about an employee is considered confidential and is to be
released only to authorized personnel.’’
Develop different Codes of Conduct for different work functions. Creating Codes of Ethics and
Conduct must be followed by effective implementation. Effective implementation of a code
increases employee job satisfaction and organizational commitment, enhances ethical
performance, and impacts how employees assess the organization’s ethics. Hypocrisy sets in if

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the codes are merely empty words, resulting in a decrease in employee job satisfaction and an
increase in employee turnover.
3.3.2 Employee Training
What might be the purposes or objectives of such ethics training? Several purposes have been
suggested:
1. To increase the manager’s sensitivity to ethical problems
2. To encourage critical evaluation of value priorities
3. To increase awareness of organizational realities
4. To increase awareness of societal realities
5. To improve understanding of the importance of public image and public/society
relations.
To this list we might add some other desirable goals:
6. To examine the ethical facets of business decision making
7. To bring about a greater degree of fairness and honesty in the workplace
8. To respond more completely to the organization’s social responsibilities
Materials and formats typically used by firms in their ethics training include the following: ethics
codes (as a training device), lectures, workshops/seminars, case studies, films/discussions, and
articles/speeches.
3.3.3 Performing an Internal Ethics Audit
An internal ethics audit utilizes several different sources. An auditor (or a committee, if there is
no auditor) usually goes over the information to determine if any adjustments need to be made.
Sources:
• Surveys
• Interviews
• Documents
• Focus Groups
• Direct Observation
The audit is used to evaluate the design, execution, and effectiveness of the organization's ethical
objectives, programs, and activities.
3.4 Corporate social responsibilities

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The social responsibility of business encompasses the economic, legal, ethical, and philanthropic
(voluntary) expectations that society has about organizations at a given point in time.
 Economic Responsibilities
The social system calls for business to be an economic institution. That is, it should be an
institution whose objective is to produce goods and services that society wants and to sell them at
fair prices—prices that society thinks represent the true value of the goods and services delivered
and that provide business with profits adequate to ensure its survival and growth and to reward
its investors. Today, the global hyper-competition in business has highlighted the importance of
business’s economic responsibilities. But economic responsibilities are not enough.
 Legal Responsibilities
Legal responsibilities reflect society’s view of “codified ethics” in the sense that they embody
basic notions of fair practices as established by our lawmakers. It is business’s responsibility to
society to comply with these laws. If business does not agree with laws that have been passed or
are about to be passed, our society has provided a mechanism by which violators can be heard
through the political process.
 Ethical Responsibilities
Because laws are essential but not adequate, ethical responsibilities are needed to embrace those
activities and practices that are expected or prohibited by society even though they are not
codified into law. Ethical responsibilities embody the full scope of norms, standards, values, and
expectations that reflect what consumers, employees, shareholders, and the community regard as
fair, just, and consistent with the respect for or protection of stakeholders’ moral rights. In one
sense, changes in ethics or values precede the establishment of laws because they become the
driving forces behind the initial creation of laws and regulations. In another sense, ethical
responsibilities may be seen as embracing and reflecting newly emerging values and norms that
society expects business to meet, even though they may reflect a higher standard of performance
than that currently required by law. Business is expected to be responsive to newly emerging
concepts of what constitutes ethical practices.
 Philanthropic Responsibilities
Fourth, there are business’s voluntary, discretionary, or philanthropic responsibilities. Though
not responsibilities in the literal sense of the word, these are viewed as responsibilities because
they reflect current expectations of business by the public. The amount and nature of these

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activities are voluntary, guided only by business’s desire to engage in social activities that are not
mandated, not required by law, and not generally expected of business in an ethical sense.
Nevertheless, the public has an expectation that business will “give back,” and thus this category
has become a part of the social contract between business and society. Such activities might
include corporate giving, product and service donations, employee volunteerism, partnerships
with local government and other organizations, and any other kind of voluntary involvement of
the organization and its employees with the community or other stakeholders.
Though there is sometimes an ethical motivation for companies getting involved in philanthropy,
more often it is viewed as a practical way by which the company can demonstrate that it is a
good corporate citizen. In addition, some companies engage in philanthropy because they
perceive an “institutional” expectation that they do so. That is, they see other major companies in
their industry doing so and think they also need to participate to be accepted.
A major distinction between ethical responsibilities and philanthropic responsibilities is that the
latter typically are not expected in a moral or an ethical sense. Communities desire and expect
business to contribute its money, facilities, and employee time to humanitarian programs or
purposes, but they do not regard firms as unethical if they do not provide these services at the
desired levels. Therefore, these responsibilities are more discretionary, or voluntary, on
business’s part, although the societal expectation that they be provided has been around for some
time. This category of responsibilities is often referred to as good “corporate citizenship.”
3.7 Whistles-Blowing
Whistle-blowing can be defined as the release of information by a member or former member
of an organization that is evidence of illegal and/or immoral conduct in the organization or
conduct in the organization that is not in the public interest. There are several points to
observe in this definition.
First, blowing the whistle is something that can be done only by a member of an
organization. It is not whistle-blowing when a witness of a crime notifies the police and
testifies in court. It is also not whistle-blowing for a reporter who uncovers some illegal
practice in a corporation to expose it in print. Both the witness and the reporter have
incriminating information, but they are under no obligation that prevents them from making
it public. The situation is different for employees who become aware of illegal or immoral

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 conduct in their own organization. Whistle-blowing, therefore, is an action that takes place
within an organization.
The difference is due to the fact that an employee is expected to work only as directed, to go
through channels, and, especially, to act in all matters for the well-being of the organization.
Also, the information involved is typically obtained by an employee in the course of his or
her employment, as a part of the job. Such information is usually regarded as confidential, so
that an employee has an obligation not to reveal it, especially to the detriment of the
employer. To “go public” with information that is damaging to the organization is generally
viewed as violating a number of obligations that an employee has as a member of the
organization.
Second, there must be information. Merely to dissent publicly with an employer is not in
itself to blow the whistle; whistle-blowing necessarily involves the release of nonpublic
information. According to Sissela Bok, “the whistleblower assumes that his message will
alert listeners to something they do not know, or whose significance they have not grasped
because it has been kept secret.” A distinction can be made between blowing the whistle and
sounding the alarm. Instead of revealing new facts, as whistle-blowers do, dissenters who
take a public stand in opposition to an organization to which they belong can be viewed as
trying to arouse public concern, to get people alarmed about facts that are already known.
Third, the information is generally evidence of some significant kind of misconduct on the
part of an organization or some of its members. The term whistle-blowing is usually reserved
for matters of substantial importance.
Fourth, the information must be released outside normal channels of communication. In
most organizations, employees are instructed to report instances of illegal or improper
conduct to their immediate superiors, and other means often exist for employees to register
their concerns. Some corporations have an announced policy of encouraging employees to
submit any suspicions of misconduct in writing to the CEO, with an assurance of
confidentiality. Others have a designated official-often called an ombudsman-for handling
employee complaints. Whistle-blowing does not necessarily involve “going public” and
revealing information outside the organization. There can be internal as well as external
whistle-blowing. However, an employee who follows established procedures for reporting
wrongdoing is not a whistle-blower.

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 A definition of whistle-blowing also needs to take into account to whom the whistle is blown.
In both internal and external whistle-blowing, the information must be revealed in ways that
can reasonably be expected to bring about a desired change. Merely passing on information
about wrongdoing to a third party does not necessarily constitute whistle-blowing.
3.7.1 The conditions for justified whistle blowing
The following are some questions that should be considered in deciding whether to blow the
whistle in a specific case
 Is the situation of sufficient moral importance to justify whistle-blowing?
A conspiracy of poisonous side effects in a newly marketed drug is an appropriate situation
for disclosure because people’s lives are at stake. But situations are not always this clear. Is
whistle-blowing warranted if the side effects are not dangerous or debilitating but capable of
causing temporary discomfort or pain? What if the drug is the most effective treatment for a
serious medical problem, so that the harm of the side effect is outweighed by the benefit of
using the drug? We need to ask, in such a case, how serious is the potential harm compared
with the benefit of the drug and the trouble that would be caused by blowing the whistle? The
less serious the harm, the less appropriate it is to blow the whistle.
In addition to the moral importance of the situation, consideration should also be given to the
extent to which harm is a direct and predictable result of the activity that the whistle-blower
is protesting. Sissela Bok contends that the harm should also be imminent. According to her,
an alarm can be sounded about defects in a rapid transit system that is already in operation or
is about to go into operation, but an alarm should not be sounded about defects in a system
that is still on the drawing boards and is far from being operational.
 Do you have all the facts and have you properly understood their significance?
Whistle-blowing usually involves very serious charges that can cause irreparable harm if they
turn out to be unfounded or misinterpreted. A potential whistle-blower, therefore, has a
strong obligation to the people who are charged with wrongdoing to make sure that the
charges are well-founded. The whistle-blower should also have as much documentation and
other corroboration as possible. A whistle-blower’s case is stronger when the evidence
consists of verifiable facts and not merely hunches or rumors. Since whistle-blowing cases
end up in court, the proof should also be strong enough to stand up under scrutiny. The

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 support for the charges needs to be overwhelming, but it should meet the ordinary legal
standard of a preponderance of evidence.
Employees often have access to only some of the facts of a case and are liable, as a result, to
form false or misleading impressions. Would-be whistle-blowers must be careful, therefore,
not to jump to conclusions about matters that higher-level managers, with a fuller knowledge
of the situation, are in a better position to judge. Typically, employees have only one kind of
expertise, so they are not able to make an accurate judgment when different kinds of
knowledge are needed.
 Have all internal channels and steps short of whistle-blowing been exhausted?
Whistle-blowing should be a last rather than a first resort. It is justified only when there are
no morally preferable alternatives. The alternatives available to employees depend to a great
extent on the provisions an organization makes for dissent, but virtually every organization
requires employees to take up any matter of concern with an immediate superior before
proceeding further-unless that person is part of the problem. Courts will generally not
consider a complaint unless all possible appeals within an organization have been exhausted.
Some progressive corporations have recognized the value of dissent in bringing problems to
light and have set up procedures that allow employees to express their concern through
internal channels. Steps of this kind reduce the need for whistle-blowing and the risks
external whistle-blowers take. It is possible to justify not using internal channels, however,
when the whole organization is so mired in the wrongdoing that there is little chance that
using them would succeed.
 What is the best way to blow the whistle?
Once a decision is made to “go public,” a host of other questions have to be answered. To
whom should the information be revealed? How much information should be revealed?
Should the information be revealed anonymously or accompanied by the identity of the
whistle-blower? Often an anonymous complaint to a regulatory body is sufficient to spark an
investigation.
Whistle-blowing is also more likely to be effective when an employee presents the charge in
an objective and responsible manner. It is especially important that a whistle-blower stick to
the important issues and refrain from conducting crusades or making personal attacks on the
persons involved. Organizations often seek to discredit whistle-blowers by picturing them as

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 disgruntled misfits or crazy radicals; intemperate, wide-ranging attacks undermine the
whistle-blower’s own credibility. Many whistle-blowers recommend developing a clear plan
of action. Do not blow the whistle impulsively, they advise, but think out each step and
anticipate the possible consequences.
 What is my responsibility in view of my role in the organization?
The justification for blowing the whistle depends not only on the wrongdoing of others but
also on the particular role that a whistle-blower occupies in an organization. Thus, an
employee is more justified in blowing the whistle-and may even have an obligation to do so-
when the wrongdoing concerns matters over which the employee has direct responsibility.
When an employee is a professional, the question of whether to blow the whistle must be
considered in the context of professional ethics. Professionals such as lawyers, accountants,
and engineers, have a greater obligation to blow the whistle under some circumstances and
are restricted or prohibited from whistle-blowing under others
 What are the chances for success?
Insofar as whistle-blowing is justified because of some good the public, it is important to
blow the whistle only when there is reasonable chance of achieving that good. Whistle-
blowing may be unsuccessful for many reasons. Sometimes the fault lies with the whistle-
blower, who fails to make a case that attracts widespread concern or to devise an effective
plan of action; other times it is simply that the organization is too powerful or the public not
sufficiently responsive.

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