Corporate Accountability and Ethics

Updated Wednesday 9th November 2005

A disregard for ethics can lead to trouble: remember the Enron saga? This article, based on course extracts from the OU Business School, asks how can we ensure our companies operate with ethics and accountability?

Enron code of ethics book cover Copyrighted image Icon Copyright: BBC

Ethical behaviour is a major concern in many areas of our lives. We cannot turn on the radio without hearing discussions about ethical dilemmas that face people in all sorts of situations. These may include:

  • purchasing dilemmas, such as whether or not to buy furniture made from tropical hardwood, perhaps contributing to the destruction of the rainforests;
  • individual and family decisions about whether to make use of private medicine and education;
  • professional dilemmas about withholding or rationing medical treatment in certain circumstances;
  • corporate dilemmas such as holding investments in arms manufacture or tobacco.

Reflection on these may prompt you to think that behaving ethically is not always easy. You may be clear that you think certain types of behaviour are wrong – but you will be aware that there are issues where other people hold passionate views on both sides of the debate, particularly around issues of life and death such as euthanasia or legalised abortion. Ethical behaviour is about making moral judgments about what is right and what is wrong and then developing codes of practice to hold these beliefs in place and provide the basis for expressing them in action.

What we regard as ethical or morally right arises from our values: what we regard as important about how we, and the organisations where we work, ought to behave. When words like ‘good’, ‘should’ and ‘ought’ enter the vocabulary, it is an indication that we are in ethical territory. In essence, when we talk about values and ethical behaviour we are talking about the criteria we use in our day-to-day work to make decisions. Indeed, you may not be wholly conscious of doing this, until someone challenges your decisions and you are forced to justify them.

It is this underpinning of values that makes ethical behaviour a ‘slippery concept,’ for values have many different sources. We have dominant values in our society – historical, religious, political and cultural contexts – and these in turn affect the way our organisational values are shaped. The latter will come from the founding stories, missions and values that subtly shape and make organisations distinctive from one another, even within the same field. We will also hold values as a group.

We often make statements about what and who we are as a person through the organisations and associations that we join. For example people who join the League Against Cruel Sports are making a values statement about believing in respect for all animal life. Those who join the British Field Sports Association are making a similar statement about their views on hunting animals as a sport and on the need to control vermin and protect the livelihood of farmers. Similar issues apply to work groups within an organisation who may develop differing values about how things should be done. And finally, we each hold sets of individual values and these may connect or clash with those of the group, organisation or society.

This is tricky stuff to pick your way around and there is no getting it right all the time. Two things stand out about the issue of dealing with values.

First, arguments about values are not always arguments about ‘right and wrong’. One dilemma for managers is that conflicts over values are usually conflicts between different and incompatible rights. If you consider the example of field sports above you can see that to sustain these arguments the proponents of differing positions are drawing on different types of values to support their arguments and no amount of debate will produce a compromise between the two positions. The anti-hunting people tend to see animals as part of a complex web of nature, or as ‘cute’ or indeed as vested with ‘rights’. The pro-hunting people may emphasise individual human freedom to pursue sports that other people may not like but which do not harm them, the economic contribution of hunting, or the right of farmers to protect their livestock.

Second, the language in which ethical debates are conducted often creates confusion and misunderstanding. People rarely distinguish between the different types of values, behaving instead as if all values are consistent with each other, although they are not. However, we often choose to ignore this, for it is uncomfortable to realise that what is good for private individuals does not always line up with what is good and right for our work colleagues, our organisations or even political movements.

 

Writing about lapses in company ethics in the Canadian Ethics Centre’s newsletter in 2003, Mark Johnson, a corporate lawyer, observes that there is a psychology of ethical lapses:

Only on rare occasions will hardworking and inherently honest humans knowingly commit an act of wrongdoing. In most cases the person rationalises the act in a number of ways with one or more of the following excuses to lower the bar of ethics and relieve his conscience.

  • ‘Everybody does it.’ This provides the individual with herd immunity.
  • ‘It’s no big deal.’ This reasoning minimises the wrongdoing to place it within a tolerable range.
  • ‘The problem will go away.’ This is more applicable to acts of omission rather than acts of commission.
  • ‘Get along by going along.’ This rationalisation is rooted in fear. What ambitious person in their right mind would say no to his or her boss?

One example is the famous shredding of Enron documents by Arthur Andersen. More than any other single act, this contributed to the collapse of Arthur Andersen. The subordinates who carried out the order would probably offer up the defence that they were just following orders.

We are probably all aware of the unwillingness of most people to ‘speak truth to power’ for fear that it will damage their prospects in the organisation. Conflict avoidance is more common than conflict seeking in organisations, yet this leads to huge problems when minor issues are left unattended to. Good ethical policy is likely to create conflicts if it is to be effective. Expectations need to be clearly communicated, understood and owned by everyone in the organisation.

There is usually concern on the part of those trying to resolve ethical dilemmas to preserve the good name of their organisation. Reputation matters and those running any organisation will feel an obligation to ensure that they execute their duties to maintain this precious commodity. Good name is easy to lose and hard to retain, particularly in the voluntary sector where, at times, gossip and informal networking seem to be the prevailing means of communication. This feeling of obligation to perform and to behave ethically is a key component of accountability.

Accountability
We are all familiar with financial accounting and the obligations it imposes to show how money has been used within an organisation, but accountability has wider meanings. It is one of those words we use all the time, often without thinking very hard about what it implies for our resource winning. We tend to use phrases like

  • ‘The buck stops here.’
  • ‘We’re here to serve our users.’
  • ‘We’ve a responsibility to our donors.’

This indicates that along with the feeling of obligation goes a sense of responsibility for actions taken. In essence, accountability is a moral relationship between those who delegate authority and those who receive it.

But of course this is not as straightforward as it sounds, for accountability takes different forms depending on the quality of the relationship and the degree of trust between the parties to that relationship. There are three key components to an accountability relationship:

  • Delegation – This occurs when the management of a decision or a task is handed over to another in the expectation that they will ensure its fulfilment on your behalf. It will involve a greater or lesser degree of discretion.
  • Responsibility – This is the view from the other side of the relationship – and with this, as we have observed above, goes a sense of obligation to ensure that a task that has been delegated to you is implemented, and to the standards expected.
  • Legitimacy – This accountability relationship requires a recognition on the part of those being held to account of the ‘right’ of those demanding such an ‘account’ to make that demand.

One reason for this concern with accountability is the need to demonstrate that resources are used to good effect. It is linked with a decline in trust in our society as relationships that rely on affective ties (such as community and friendship) have been supplanted by more instrumental relationships based on contractual and business relationships.

It is important to realise that no organisation exists separately from the wider community, and organisations that ignore community standards of fairness and morality are subject to a range of adverse consequences. In many cases social standards of fair treatment are enshrined in law. In addition, organisations that are seen to breach widely held standards of ethical behaviour may find themselves subject to pressure from customers, the media or other influential groups. Many funds will only invest in ‘ethical’ companies, and there are several ‘ethical rating’ systems for share analysis. The conclusion must be that ethics are a crucial factor in the attainment of organisational goals.

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About this article

This article is based on extracts taken from the Open University Business School courses: Winning Resources and Support (B624) and Managing Performance and Change (B700).

 

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