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Performing at a Higher Level – Building Your Company’s Ethical Competency: 

Performing at a Higher Level – Building Your Company’s Ethical Competency Professor Lynn Sharp Paine John G. McLean Professor of Business Administration Harvard Business School Leadership Forum 2002 – Ethical Challenges for Business and Government Leaders ICAC, Hong Kong, December 12th, 2002

Ethics as a corporate priority: 

Ethics as a corporate priority On July 9, 2002, U.S. President Bush declared that “America’s greatest economic need is higher ethical standards.” In August 2002, the New York Stock Exchange proposed that listed companies be required to adopt and disclose codes of business ethics and conduct. In April 2002, an advisory panel to Japan’s prime minister called on companies to adopt codes of behavior to restore consumer confidence in business. In March 2002 the Swedish government launched an initiative to promote a higher ethical standard and greater social responsibility among Swedish companies.

Ethics as a corporate priority: 

Ethics as a corporate priority In 2001, European Commission green paper proposing a European framework for corporate social responsibility. In 2000, London Stock Exchange began to require that listed companies disclose whether they have policies for managing significant risks, including legal, health, safety, environmental, reputation, and business probity risks. In 2000, the OECD issued a revised set of ethical guidelines for multinational companies. In 1999, the UN Secretary-General called on leading companies worldwide to adopt a set of guiding principles for corporate social responsibility.

Departing from a long tradition: 

Departing from a long tradition 13th century: Pope Innocent IV as “fictional persons” lacking body and soul, corporations cannot be punished 17th century: Sir Edward Coke, Chief Justice, King’s Bench as “fictional persons” lacking a soul, corporations cannot commit treason, be outlawed, or excommunicated 18th century: Edward Thurlow, First Baron, Lord Chancellor as “fictional persons,” corporations have neither “pants to kick” nor a “soul to damn” 19th century: Chief Justice John Marshall as “artificial beings,” corporations have only those properties conferred by charter of creation 20th century: Nobel Economist Milton Friedman as “artificial persons,” corporations cannot have “real” responsibilities The corporation as amoral …

Differing perceptions: 

Differing perceptions Self Perception Ethical Leader Others’ Perception Ethically Neutral Leader vs. Source: Linda Klebe Treviño, Laura Pincus Hartman, Michael Brown, California Management Review, vol. 42, no. 4 (Summer 2000).

How do employees perceive management?: 

How do employees perceive management? Do your CEO and other senior managers know what type of behavior goes on in the company? Are your CEO and other senior managers approachable if an employee needs to deliver bad news? Would your CEO or other senior managers authorize illegal or unethical conduct to meet business goals? Would your CEO and other senior managers respond appropriately if they became aware of misconduct? Source: KPMG, 2000 Organizational Integrity Survey Summary (2,390 employees in selected industries).

Employees’ perceptions of management: 

Employees’ perceptions of management Only 43% believe their executives know what type of behavior goes on. Only 45% believe their executives are approachable with bad news. Only 62% believe their executives would not authorize illegal or unethical behavior. Only 64% believe their executives would respond appropriately if they became aware of misconduct. Source: KPMG, 2000 Organizational Integrity Survey Summary (2,390 employees in selected industries).

Managing corporate values – 1995 : 

Managing corporate values – 1995 Forbes 500 Companies (237 respondents): Source: Patrick E. Murphy, “Corporate Ethics Statements: Current Status and Future Prospects,” Journal of Business Ethics 14: 727-740 (1995). Code of Ethics Values Statement Corporate Credo All Three Documents 82% 83% 81% 91% 53% 34% 49 cos. Revised in ‘90s 15.5% 8.0% 22.0% 18.5% 51.0% 41.0% Date Introduced >20 yrs. < 5 yrs.

Origins of misconduct: 

Origins of misconduct individual wrongdoing good people with insufficient knowledge and awareness inadequate job skills lacking prudence, judgment, courage management and organizational design misaligned management systems inadequate information flows perceived management indifference social and institutional context inadequate legal and regulatory framework pressures from unethical customers, competitors

Points of view: 

Points of view House member: Firestone exec: “So you looked at it from a financial point of view and not a consumer safety point of view? I’m sorry to say that I believe that is the case.” Source: Congressional Hearings, U.S. House of Representatives, September 6, 2000.

The manager’s compass: 

The manager’s compass

Performing at a higher level: 

Performing at a higher level Adequacy of standards and policies Adequacy of decision models and criteria Suitability of organizational structures, systems, processes Suitability of performance measures and incentives Suitability of prevailing habits and attitudes Adequacy of leadership models and competencies Some implications:

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