Increased corporate scandals and the discovery off rise in unethical business practices have thrown the topic Of business ethics into the spotlight. Organizations are expected by heir stakeholders to implement strong ethics within their corporate structure and culture. This expectation could be accomplished through strong ethical leadership, formal structures and regulations that place emphasis on ethics, and by making a commitment to corporate social responsibility.
Using these guidelines will help organizations overcome the various challenges allowing the business to build a strong ethical foundation that will ultimately benefit the company through increased customer and employee satisfaction, which could result in increased profits, organizational sustainability and social Status. The review of the literature reveals that there is still plenty Of room for exploration on the topic of business ethics and particularly with the topic of ethical leadership.
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It is recommended that more focus be placed on understanding the influence of strong ethical leadership within an organization and how this influence flows down the organizational structure. Once this flow Of influence is understood, exploration is necessary to identify the best procedures for developing and sustaining strong influential leadership ethics within the organizational structure. Organizational Design & Business Ethics: A Literature Review: Outline 1) Title Page 2) Abstract 3) Introduction a) Introduction to business ethics and why it is important in current literature. ) Themes present in literature (Thesis) Defied notion of ethics Ethical leadership Formal structures and regulations Benefits of business ethics 4) Overview Of Business Ethics a) Definition Of Ethics b) Types of Ethics I) Individualistic ii) Corporate/Business Ethics c) Managerial Ethics I) Relationship Between Laws and Ethical Standards ii) Ethical Decision Making d) Corporate Social Responsibility 5) Implementing Business Ethics Through Leadership ) Values-Based and Ethical Leadership I) Need for Value-eased/Ethical Leaders ii) Characteristics of Values-Based/Ethical Leaders iii) Role of Ethical Leadership in Business Ethics 6) Integrating Ethics Using Formal Structure and Systems a) Codes of ethics b) Programs and other policies to enforce ethical behaviors 7) Benefits of Ethical Organizations Employee Satisfaction/Productivity Increased profits Social Status Sustainability 8) Conclusion and Recommendations Needs to be more exploration in the topic of ethical leadership Focus on understanding how ethical leadership influences corporate culture and how it lows down the corporate structure Research should attempt to identify the best procedures for developing and sustaining strong influential leadership ethics within the organizational structure.
Organizational Design & Business Ethics: A Literature Review Ethics, and particularly the role it should play in business, continues to be a topic of hot discussion in today’s society. Increased corporate scandals and the discovery of a rise in unethical business practices have thrown the topic Of business ethics into the spotlight. Over the past few decades many successful, prominent companies have collapsed due to corporate scandals, which resulted not only in the loss of jobs of many employees, but also led to large financial losses of thousands of shareholders. This cascading effect of unethical behavior by company executives led to increased expectations from all stakeholders of an organization.
Stakeholders, who include employees, investors, shareholders, and customers, expect organizations to do more than just maximize the bottom line profit; organizational management is expected to accomplish this goal both legally and ethically, while also implementing some sort of program or policy that seeks to benefit society or the environment at large. Companies are expected to implement ethics within their organizational Structure and culture. This expectation could be accomplished through strong ethical leadership, formal structures, and regulations that place emphasis on ethics, and by making a commitment to corporate social responsibility.
Following the implemented ethical procedures and guidelines will help organizations overcome the various ethical dilemmas and challenges, allowing the business to build a strong ethical foundation that will ultimately benefit the company through increased customer and employee satisfaction, which could result in increased profits, organizational sustainability and social status. A review of the current literature regarding business ethics reveals that am emphasis is placed on defining and understanding business ethics, understanding how ethical leadership is used to implement ethics into an organization, identifying how ethics are integrated into the organizational structural, and finally reviewing the benefits of operating an ethical business. Overview of Business Ethics Ethics is a complex construct. One must first understand what ethics is before understanding the important role it plays in business and leadership.
The current literature offers many different definitions for ethics, which will be explored, as well as the various types of ethics and their integrations with organizational management and policies. Definition Of Ethics Merriam-Webster (2014) defines ethics as “rules Of behavior based on ideas about what is morally good and bad. ” People have varying concepts of what is considered right or wrong or good and bad. For this reason, ethics becomes difficult to define and comply with (De Creme & De Betting’s, 2013). Dates and Dallas (2013) define ethics as “the body of knowledge that eels with the study of universal principles that determine right from wrong” (p. 38).
Recalls (2010) further explains that ethics is different from morality in that while morality deals with the principles of right and wrong in general, ethics focuses on the standards of conduct that are generally acceptable to a large group. Therefore, it is important to note, that ethical behavior focuses on what is good for others rather than on what is good for oneself. Molehill, Lipstick, and Dietetic (2010) add to this definition noting that “ethical behavior is both legally and morally acceptable to the larger community” (p. 32). Business ethics, therefore; is a branch Of applied ethics as it relates to the various business activities of human beings (Keller-Crackly, 2010).
Being able to understand and implement good ethical principles into the business setting is key to developing a strong organizational culture nurtured by ethical principles. Types of Ethics Many times when people speak or write about ethics they refer to one Of two types, individual ethics and/or organizational (group) ethics. Scholars have studied both types of ethics in an attempt to understand how individual and organ conditional ethics intertwine and connect with one another. Accurately interpreting the relationship between the two is crucial to understanding how strong ethical values could be successfully instilled into an organization’s environment. Individualistic ethics. The concept of right and wrong is something that is instilled in individuals from the time of their birth.
Individuals may learn what it right and wrong from their parents, teachers, religious education, or life experiences. They then take what they learn and create their own personal values which help to shape and develop their individual sense of ethics. Along, Paul, Kinds, and Padded (2010) explain the various research works hat supports the argument that an individual’s personal values and ethical standards are the main driver Of a person’s intention to practice ethical behavior. The authors explain that there is strong evidence to support the theory linking an individual’s attitude toward a behavior to the actual behavior of that individual al (Along et al. 2010). Corporate/organizational ethics. Just as individuals create and develop their own ethical standards, groups of individuals may also develop a shared sense of what is considered ethical. Many literary works support the idea that the ultra of an organization, including the belief systems, have a profound influence on an employee’s thinking and ultimately on his/her professional behavior (Along et al. , 2010). The ethical behavior Of an organization is defined by the corporate culture. Recalls (2009) defines corporate culture as the “assumptions, beliefs, goals, knowledge and values that are shared by organizational members” (p. 252).
The culture of an organization defines the behavior patterns of the employees, profoundly influencing their actions and choices in a given situation. Much research is focused on studying the legislation between corporate ethical values and an individual’s personal ethical values. Along et al. (2010) hypothesized that employees will have greater ethical intentions if they perceive a high level of organizational ethics. The findings of the study conducted by Along et al. (2010) indicated that there was a significant relationship between organizational ethics and an individual’s ethical intentions, supporting the notion that organizations could build an ethical business by focusing on creating a positive ethical culture.
Likewise, a study conducted by Recalls (2010) also concluded that there is an interaction between individual ethical perceptions and values and the organization’s value systems, providing “evidence to the theory that an organization’s ideology and culture is indeed likely to shape decision-making and action in that organization” (p. 257). Managerial Ethics An important aspect of business ethics is managerial ethics, which refers to the decisions, actions, and behaviors of mangers and whether they are considered right or wrong (Daft, 2013). Individuals in positions of management must make the decision every day whether or not to act in an ethical manner.
As discussed earlier, deciding what is considered right or rang ethically, is not always black and white. Many times managers find themselves pushing the limits and entering the grey area Of ethics. De Creme and De Betting’s (2013) explain that in the business environment there are many implicit expectations and norms that motivate managers and ultimately may push them to cross the boundaries and behave unethically. Many times competitiveness and greed could push managers into the ethical grey area. According to De Creme and De Betting’s (201 3), “This attitude of pushing the limits effectively clouds our own moral limits and, as a result, increases the chances that we eventually will cross the boundaries” (p. 65).
Many managers believe if they are not doing anything illegal, than they are acting ethically. This is not always the case; therefore, it is important for managers to understand the difference between laws and ethical standards. Once managers have a fair understanding of what is considered appropriate ethical behavior, they can focus on making good ethical decisions for the organization. Relationship between laws and ethical standards. Keller-Crackly (2010) explain that laws are rules of conduct set by a governing body that either squires or prohibits individuals or businesses from performing certain actions. Failure to comply with the set laws may result in punishments such as financial penalties and/or imprisonment.
As mentioned previously, it is not uncommon for individuals to believe that if they are operating within the boundaries Of the law, then they are behaving ethically. Unfortunately, there are many actions that may be considered legal, but are not considered ethical. Keller-Crackly (2010) supports this notion stating that usury (charging high interest rates in countries that do not set a legal limit on rates) s a good example of a behavior that is legal but also considered unethical. Business managers must attempt to understand the relationship and differences between laws and ethics if they wish to help implement ethics within their organization.
Managers are often times aware of the laws and regulations because they are formally written and failure to comply with them will result in some sort Of sanctioned punishment, whereas ethical standards are socially construed and failure to comply with these standards is not always punishable under state or federal sanctions. Cameron (2011) explains hat ethical standards do not always serve as adequate fixed points for managers because they “often change over time and circuit instance” thus they “frequently to do not remain stable because they are socially construed” (p. 30). Although laws and regulations are different than ethical standards, managers need to understand how the two can be integrated and used within their organization to help build a solid ethical foundation.
Belonged (2012) acknowledges that many philosophers and legal scholars have attempted to explain the complicated relationship that exists between laws ND ethics and although it is still not easily understood, it is evident that there is indeed a connection between the two. A study conducted by Belonged (2012) explored the idea of “substantive ethics” (an integration of law and ethics) and how it could be applied to corporate governance as well as the managerial decision-making process. This idea Of substantive ethics and how it could be integrated into the formal corporate structure is discussed in greater depth later in this paper. Ethical decision making. One of the major tasks of a manger is to make decisions. The decisions they make not only reflect back on them as an individual, but on the organization as well.
Dates and Dallas (2013) point out that the decisions of managers have a far greater impact on the world today as compared to years ago since technology has allowed for the inter- connection of economies. They go on to explain that a poor decision by a manger in one part Of the world can have dramatic consequences for people in another part of the world (Dates & Dullard, 2013). It is obvious that good decision making is an important part of organizational success. What factors control or influence managerial decision making? Findings of a study conducted by Along et al. 2010) indicate that both individual ethics and organizational ethics played a role in guiding managers into making ethical choices.
This means that managers are influenced by their own ethical values and experiences as well as the ethical standards, practices and procedures discerned in their workplace. These findings were also supported by the study conducted by Recalls (2010) which indicated that an organization’s culture plays an instrumental role in the decision making process. Dates and Dallas (2013) explain that ethical decision making is not solely about ensuring that a manger’s decision will not have an adverse affect on others, it also requires that those in positions of management actively look to make decisions that will benefit others. Choosing to make ethical decisions on a daily basis has proven a difficult task for many managers.
Managers are constantly faced with ethical dilemmas in the workplace. Molehill et al. (2010) review various literary works regarding the topic of ethical leadership and identify an important concept stating that ethical managers “incorporate ethical dimension in the decision-making process, consider the ethical consequences of their decisions and above all try to make fair choices” (p. 33). Corporate Social Responsibility A topic that is closely related and intertwined with the concept of business ethics is corporate social responsibility (CARS). Low and Nag (2013) explain that each organization may have their own definition of CARS; however, each of the definitions seems to share common ground and themes.
World Business Council for Sustainable Development (2000) offers the following definition of CARS: Corporate social responsibility is the iconic nuking commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local immunity and society at large. (as cited in Low & Nag, 2013, p. 33). As evident from this detailed definition, CARS plays an instrumental part in the ethical arena Of a business. Been, Todd and Pendleton (2010) theorize that although the concept Of CARS is to benefit the society at large, the underlying reason for an organization to implement CARS strategies is to satisfy stakeholder expectations.
The authors explain that corporate scandals, fraud and an increase awareness of environmental, social and health concerns has led many stakeholders to lose credibility in corporations (Been et al. , 2010). Low and Nag (2013) emphasize that many external stakeholders are beginning to take a more thorough interest in the activities of an organization by concentrating on not only what the company has done with its products and/or services, but also on how the company has impacted the environment or local community. As a way to rebuild credibility and satisfy the interests Of stakeholders, many organizations are using CARS strategies that seek to create a positive impact on society.
Regardless of the motivation behind implementing the CARS strategies, many scholars agree that in order to implement successful CARS policies, organizations need to have a strong ethical foundation (Low & Nag, 2013; Been et al. , 2010). An empirical study conducted by Been et al. (2010) provided strong evidence that corporate leadership and structure play an instrumental role in embedding CARS strategies and policies across the organization. Thus, since business ethics and CARS are intrinsically intertwined it is imperative that one understands how ethics and CARS could be incorporated within an organization through leadership, formal structures, and systems.
Implementing Business Ethics through Leadership Now that the construct of business ethics has been defined and explained, Ochs needs to be placed on how leadership could be instrumental in strengthening or implementing business ethics within an organization’s culture. Just as there are several different definitions for ethics, there are also many definitions and interpretations of leadership. Norwegian and Drew (2013) cite several different definitions of leadership before ultimately arriving at a generalized definition that states “leadership deals with persuading, inspiring, motivating others, and spearheading useful changes” (p. 34). Likewise, Molehill et al. 2010) emphasize that the role of a leader is to help direct the behavior of his/her followers toward a desired goal. There are many different types and methods Of leadership that allow leaders to accomplish their goals and objectives. The main focus of this paper is on value-based and ethical leadership and how these types of leadership are instrumental in promoting ethical behavior among employees within their organization. Value-Based and Ethical Leadership Ethics had previously been described as a body of knowledge concerning itself with moral principles that govern the behavior of individuals. Leadership was defined as the act of persuading or influencing individuals toward a desired goal.
Therefore, by combining these two definitions, Dates and Dallas (2013) derived the following simple definition for ethical leadership: “the art Of helping, guiding, and influencing people to achieve a common goal in a morally acceptable (p. 38). Similarly, Busch and Weenies (2012) explain that value-based leadership focuses on two primary leadership dimensions: 1) ensuring the visibility and meaningfulness of values and 2) generating moral engagement within an organization. Although many scholars argue that value-based leadership and ethical leadership are synonymous, Morrison and Magmata (2010) review various studies that acknowledge that while the two types of leadership do tend to overlap, there are also major differences that cannot be ignored.
Brown and Terrine stress that one significant difference between the two is that “ethical leadership focuses on the content Of the values” while value-based leadership tends to ignore the content, focusing instead on the sharing of values between the leader and followers (as cited in Morrison & Magmata, 2010). Taking this into consideration it could be construed that effective ethical leaders are also influential value-based leaders that inspire and enable their followers to cake the right choices and adopt the same ethical values embraced by the leader. Vanadium (2012) supports this idea, explaining that value-based leaders carry the responsibilities of setting ethical goals and standards, rewarding those that achieve the desired outcome of teeth kcal conduct, and penalizing anyone that strays from the set ethical values and standards.
In order to comprehend the role ethical and value based leadership plays in business ethics, it is essential that one first understands why there is a need for ethical leadership and is able to identify the characteristics of an effective ND influential ethical leader. Need for value-based and ethical leaders. Dates and Dallas (2013) point out that the need for ethical leadership is most evident is situations where it is absent. Recent corporate scandals such as the collapse of Enron and Arthur Andersen has shed light on the issues of corruption, power and greed revealing that these conditions could wreak havoc on organizations that do not have strong ethical leaders. According to Norwegian and Drew (2013), in today’s high-pressured business environment, organizations would find it difficult to meet daily challenges and overcome obstacles if they lacked ethical adhering.
The authors explain that more attention has been focused on ethical leadership because individuals, particularly company stakeholders, are more aware of unethical practices and seek for a way to achieve managerial accountability (Norwegian & Drew, 2013). When detailing why value-based leadership was important in organizations, Vanadium (2012) explains ‘Values are a means of influencing behaviors without the need to resort to formal structures, systems, strategies, or control mechanisms” (p. 29). Characteristics of ethical leaders. There are many traits end qualities that characterize strong ethical leaders. Molehill et al. (2010) write “a strong character plays an important role in effective self-leadership and in the process of leading others” (p. 35).
The most common traits that scholars have attributed to ethical leaders are integrity, honesty, and trustworthiness (Molehill et al. , 201 0; Norwegian & Drew, 2013). These three traits are necessary in order to build trusting relationships with followers offering credibility and consistency. Other characteristics of ethical leaders include: responsible, fair, humble, encouraging and respectful of others, shows concern for greater good, innovative and courageous (Molehill et al. 2010; Norwegian & Drew, 2013). Molehill et al. (2010) explain that in addition to the above characteristic traits it is crucial that ethical leaders embody the following five values: pride, patience, prudence, persistence and perspective.
An ethical leader should also use values-based leadership to emphasize and strengthen these ethical values within the organizational Structure. Finally, Norwegian and Drew (2013) emphasize that high regard of human worth and dignity are at the core of an ethical leader’s belief system. All the decisions and actions are made in accordance with the beliefs and actions of the ethical leader. Role of ethical leadership in business ethics. By definition, leaders persuade or influence their followers toward a desired goal. One of the main goals of ethical and values-based leadership is to motivate their followers to share and embody the same ethical values that they themselves are portraying.
A majority of scholars are in agreement that the teeth kcal conduct of an organization is primarily influenced by the leaders who are also responsible for creating and enforcing the codes Of conduct to be followed by the employees (Molehill et al. , 2010). In order for ethical leadership to be successful within an organization, all leaders, especially those that hold senior leadership positions must be committed to the ethical principles they profess and more importantly they must also exemplify these principles through their own actions (Hickman & Donahue). The relationship of a leader and follower could be compared to that of a parent and a child. A child is likely to follow and imitate the actions of the parent, performing in a manner that will likely receive the parent’s approval.
Parents wishing to teach their child how to behave properly will want to be a good role model for that child by modeling the desired behavior. Likewise, leaders need to be role models for their employees. Employees who see their leaders modeling the desired ethical behavior will be more likely to act in the same manner, which helps the behavior and ethical principles become a strong part Of the corporate culture. Hickman and Donahue (2012) support this theory stating “Leadership, both formal and informal, in the firm needs to be perceived as ‘walking the walk’ as much as ‘talking the talk’ of ethical decision-making and behavior” (p. 23) with internal employees as much as external customers and stakeholders.
Integrating Ethics Using Formal Structure and Systems Creating an ethical business requires that ethics be incorporated into all aspects of the organization. Not only must leaders and employees practice ethical principles, but ethics must be built into the organizational structure. Part of implementing ethics within the organizational structure starts with making sure that ethical leadership begins at the top Of the organization and then flows down through all levels Of the hierarchy (Dates & Dallas, 201 30. It was briefly mentioned earlier that a major role of an ethical leader was to enforce the code of conduct that would guide employee behavior within the organization.
Creating a code of conduct that emphasizes the important ethical principles the organization wishes to portray is one of several ways ethics could be integrated into an organization. It would also prove beneficial to incorporate ethics into corporate governance laws and policies, particularly by implementing and enforcing a code of ethics. According to Dates and Talmud (2013), it is necessary for the ethical values and standards to be “articulated in the wider context Of the organization, society, culture and regulations” (p. 40). Once a solid foundation for business ethics is laid within he structure, organizations need to make sure they implement polices and programs that will continue to help teach and enforce good ethical behavior.
Corporate Structure and Ethics Dates and Talmud (2013) also claim “Ethical leadership starts at the top, with the company’s board of directors… Above all, it must be present in the CEO” (p. 40). This is an important notion for implementing business ethics because if ethical leadership does not start at the highest level of management and work its way down, it is highly unlikely that it would be possible to fully integrate ethics within the organizational corporate culture. In addition to instituting ethical leadership at all levels of management, an experimental study conducted by Leman and Pecan’s-Christie (2010) revealed that the decision-making structures of organizations also have a significant effect on the ethical behavior of employees.